The next Government is expected to be one of continuity in economic and financial policies, which is pleasing to the markets.
The Socialist Party (PS) did not achieve the absolute majority, but the victory of the party in the elections pleased, nevertheless, rating agencies and investors. Despite the fact that the format of ‘Gerigonça’ 2.0 is not yet known, and fiscal consolidation may make negotiations difficult, the financial markets see the electoral result as a sign of stability for the country.
“The results of the Portuguese elections were broadly in line with our expectations. The re-election of António Costa and his party should support a continuity of economic and budgetary policy”, Kit Ling Yeung of Fitch’s sovereign ratings team told ECO, which will review Portugal’s rating at the end of next month.
The opinion is widespread: Costa at the head of the next government will bring continuity to the strategy started by the previous government. The Canadian agency DBRS anticipates a new ‘Gerigonça’ but, this time, is calm about it. “Following the election results, we expect the new government to be similar to the existing coalition,” said Jason Graffam, a DBRS analyst, who just last Friday raised the debt rating by one level to BBB (high).
The immediate reaction of the markets was reflected in the interest on the Portuguese debt. The yield on ten-year Treasury bonds fell to 0.14%, after having equalled the Spanish interest rate throughout the session. All the debt up to eight years trades with negative interest rates. On the stock market, investors also celebrated. The PSI 20 benchmark index closed with a slight gain (of 0.52%).