Brussels warns Portugal that the GDP is “optimistic”

  • ECO News
  • 20 November 2019

With one month to go before the budget is presented to Parliament, the European Commission is sending messages to the Portuguese Government about what it wants to see in the document.

The European Commission considers that the GDP growth forecast of 2% for 2020, which the Portuguese government assumed in the draft State Budget for next year, is “somewhat optimistic”. And it invites the national authorities to “accelerate the process” of structural consolidation to which Portugal is obliged by the recommendations of the European Council.

The messages from Brussels arrived on Wednesday when the government prepares the State Budget for next year and negotiates it in Parliament with the parties on its left, with a view to its approval. The European Commission has just published the EU executive’s opinion on the draft State Budget sent by the Executive on October 15, as well as a technical analysis of the document.

The two result in the immediate two big messages to Mario Centeno. The first is the macroeconomic scenario. The Executive expects the GDP to grow 2% next year, a “somewhat optimistic” forecast, point out the technicians. In the autumn forecasts, the Commission pointed to economic growth of 1.7% of GDP, showing a slowdown for 2020 compared to 2019. The International Monetary Fund and the Public Finance Council also project lower growth than the Government: 1.6% and 1.7%, respectively. But in the negotiations who has kept to the left, the Government maintains the idea of an “identical level” of growth between 2019 and 2020.

On the budget front, there are also warnings. The Government indeed made the budget in a scenario of invariant policies assuming that there are no new measures, due to the elections, but the Commission wants more. In the document with the Commission’s opinion on the outline, the EU executive warns that Portugal has made “limited progress” on the structural part of the recommendations made in July by the European Council, and invites the Portuguese authorities to “accelerate” this progress.

And what recommendations were made in this regard last July? The Commission recalls:

  • Improve the quality of public finances by prioritising growth-enhancing spending while strengthening overall spending control;
  • Continue to reduce hospital arrears;
  • Improve the sustainability of state-owned enterprises, while moving forward with comprehensive and broader monitoring of these enterprises.

Brussels also notes that the annual structural adjustment defined in the July recommendation is 0.4% of GDP. In the draft State Budget, the Government points to a deterioration of the structural balance from a deficit of 0.3% of GDP in 2019 to a deficit of 0.5% of GDP in 2020.

The Commission says that while it’s autumn forecasts assume a neutral budgetary scenario for 2020, Portugal points to a “slightly expansionary” Budget.