Bank of Portugal bulletin notes fears over US trade war

bop2 Portugal’s debt was €724.3 billion at the end of April, up €4.6 billion on March 2018. This a new high, with public sector debt primarily responsible as a result of issuing more debt through a banking syndicate.

The State’s borrowings were €322.5 billion to which can be added €401.8 billion in private sector borrowings, according to the Bank of Portugal’s latest statistical bulletin.

In April, the Treasury issued a syndicated debt issue worth €3 billion. This 15-year bond allowed the State to top up the amount needed to make the largest debt repayment of the year, amounting to more than €6 billion.

This operation was carried out in early June, and will be reflected in the next set of figures from the Bank of Portugal.

Carlos Costa, Governor of the Bank of Portugal, warned of oil price rises, interest rate rises and the dangers of a commercial war triggered by US tariff barriers.

The Bank of Portugal estimated that real growth will be around 2.3% in 2018, the same as projected three months ago and in line with what the government, the European Commission and the IMF, expect.

However, there are escalating risk factors – oil is one of them. In March, the expectations were for a barrel price maximum this year of €52.6 but this has changed for the worse with the futures market predicting a barrel of Brent costing €62.2.

There are worries over interest rates too. As Portugal is so heavily indebted, any interest rate rise will have to be paid for from increased taxation.

Although the public deficit is declining a little, it remains above 120% of GDP, one of the largest in the developed world and in Europe.

Danger signs for interest rates include, “the political uncertainty in the euro area and the possibility of an intensification of the tensions in the financial markets,” with Italy a case in point.

The summer bulletin also discusses a threat that, in recent months, has gained momentum – the declaration of commercial war by Donald Trump which would knock 2.5% off Portugal’s GDP in just three years.

In a limited trade war, the effect would be a decline of 0.7% at the end of the three-year horizon but neither scenario is welcome.

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