Portuguese businessmen on alert with risk of speculative bubble

  • ECO News
  • 25 November 2019

The formation of a speculative bubble in the price of assets, in particular, real estate, has jumped to the top of the concerns of Portuguese entrepreneurs, according to the World Economic Forum.

The main concern of entrepreneurs in Portugal is the risk of a speculative bubble forming, according to the World Economic Forum, which points to the sharp rise in property prices – in Portugal and Ireland over 10% last year – as a problem if interest rates rise.

In the report “Regional Business Risks 2019”, prepared jointly with the Marsh & McLennan Companies group and the Zurich group, the World Economic Forum conducted a survey of 13,000 business leaders in over 130 countries.

In their responses, entrepreneurs have shown that their main concern is the risk of developing a speculative bubble, a risk that has become a central concern in many European countries. A year ago, it was only the fourth of five risks pointed out by entrepreneurs; This year it has become the second most important in countries such as Germany, France and Spain.

In Portugal, Sweden, Cyprus, Estonia and Lithuania it has become the top concern of entrepreneurs (a year ago it was only the third risk), with the World Economic Forum pointing to the significant increase in house prices in the region as the main reason for this fear.

The organization says that in the current situation, in which interest rates have remained low for several years, the fear of European companies is that the housing market will react negatively when interest rates rise again.

Entrepreneurs point to the possibility of failure of a financial institution as the second most important risk, which has been a high-profile issue in Portugal in the last decade following state interventions in banks such as BPN, Banif and Banco Espírito Santo (the last two in the resolution process), and in which the state continues to be responsible for a capital injection into Novo Banco every year, following the agreement to sell this bank after the resolution of BES.

Tied to the latest fears that entrepreneurs have expressed in this report about Portugal, is the ghost of a fiscal crisis. Public finances have dominated the budgetary and political debate in Portugal for several years, especially after the start of the financial and economic crisis.

However, this is no longer the main risk in the minds of entrepreneurs, not least because Portuguese public finances are in a period of normalisation, with the deficit close to turning into a surplus, and with gradually better annual results.

The Portuguese public debt is still at high levels – it is the third-largest in the Euro Zone as a percentage of GDP – but it has also been gradually decreasing, due to the robust economic growth that has occurred in recent years and, naturally, to the accounts that are increasingly close to balance.