The financial rating agency Axesor lowered Portugal's outlook from 'stable' to 'negative'.
The Spanish financial rating agency Axesor today maintained Portugal’s unsolicited ‘BBB+’ rating but lowered the outlook from ‘stable’ to ‘negative’ due to the expected impact of the pandemic on the economy and public debt.
In their half-yearly review of Portugal’s credit rating, Axesor Rating analysts predict a contraction of the Portuguese economy that could exceed 9.4% by the end of 2020, with this drop accompanied by the deterioration of the labour market, with an unemployment rate estimated at 11.6% at the end of the year (compared to 6.5% in 2019).
Pointing out the country’s high dependence on the services, tourism and international trade sectors, the Spanish agency pointed to Portugal’s “high level of public debt”, “which could exceed 136% at the end of 2020,” and anticipates an “important deterioration of Portuguese public finances, with the budget surplus of 0.2% in 2019 turning into a deficit of over 7% in the current financial year.
Even so, the Spanish agency pointed to a “better situation in the face of previous crises, as a result of the important fiscal consolidation process and the correction of the labour market observed in recent years.”
“We consider that the outlook for our credit rating of the Portuguese Republic may improve if the deterioration in Gross Domestic Product (GDP) in the next half year is noticeably lower than expected, the recovery of the economy in 2021 happens at a much faster pace than estimated (6.3%) and public finances continue on the path of fiscal consolidation and debt reduction that had been happening up to now,” it said.
Given the impact of the health crisis, Axesor points to an increase of 9% in spending, accompanied by a reduction in the order of 6.2% of revenues, mainly due to the reduction of this with taxes on production and imports as a result of the pandemic.
Nevertheless, the Agency admits that this situation could be mitigated when aid from the European Reconstruction Fund arrives, foreseeing a recovery of revenues in 2021, with an increase of 6.4%.
The Covid-19 pandemic has claimed more than 531,000 lives and infected more than 11.3 million people in 196 countries and territories, according to a report by the French agency AFP.
In Portugal, 1,614 people have died out of 43,897 confirmed to be infected, according to the most recent bulletin of the Directorate-General for Health.