This coming Friday, the rating on Portugal’s government debt will not change, and neither will the outlook, which will continue to be described as “stable.”
Fitch, a rating agency, has kept Portugal’s rating at three levels above junk, which is the second-to-last level of the investment grade category. Additionally, Fitch has maintained a stable outlook for the progression of Portugal’s sovereign debt quality.
The rating for Portuguese debt was increased by Fitch on October 28 of last year, moving it from the previous level of BBB to the current level of BBB+. The forecast was unchanging at the time, and it continues to be so now.
In the report that was issued this evening, Fitch highlights the fact that it has revised higher its predictions for the growth of Portugal’s GDP this year. As a result, the prediction shifts from a growth rate of 1%, which was what was anticipated for 2023 in October of the previous year, to a growth rate of 1.3%. According to its most recent predictions, it anticipates a recovery of 2.1% by the year 2024.
The agency notes that the Portuguese deficit saw a significant reduction in 2022, coming in at 0.4% of GDP, down from 2.9% in 2021. According to the agency, this result “turned out much better than our estimate made in October and than the government’s targets for 2022 – both at 1.9%.” “The deficit reduction was driven by strong nominal growth in the economy, robust revenue growth, and the withdrawal of support measures under covid-19,” it stated in the report.
Due to the combination of tax cuts and increased spending in the 2023 State Budget, the anti-inflation support package, the pressures in the housing market that emerged at the end of March (Mais Habitaco), and the weakening economy, Fitch estimates that the deficit will grow to 1.2% of GDP this year (the target set by the government is 0.9%). This is despite the fact that the government has set the deficit target at 0.9% of GDP. The agency anticipates that beyond the year 2024, there will be a subsequent decline in the deficit.
According to Fitch, “public debt as a percentage of GDP has fallen sharply in 2022, from 125.4% to 113.9% due to robust nominal GDP growth.” Fitch expects that the ratio will decrease to 109.1% of GDP this year, with the downward trend continuing in 2024 (to 105.4%).
