Portugal Politics


Portugal: General elections in Portugal: can austerity win?

September 23, 2015

The general elections that Portugal will hold on 4 October are expected to result in a close call. While the ruling center-right coalition Portugal Ahead (PaF) lost significant support following four years of harsh and unpopular austerity measures, the coalition has regained momentum in the last months largely on the back of positive economic data. Portugal’s economy has been steadily recovering since 2014, the year in which the country exited its bailout program. In fact, latest polls give a small lead to PaF against the opposition Socialist Party (PS), thus raising expectations that the center-right government that slashed pensions and public services could be re-elected.

Despite the inherent uncertainty related to a new political cycle, these elections do not pose the risk of a major policy shift, as no radical party, such as SYRIZA in Greece, has arisen from three consecutive years of recession and budget cuts. On the one hand, a re-election of the Portugal Ahead coalition would ensure policy continuity and follow-up on the ongoing reforms to improve Portugal’s public finances and reduce the debt burden. On the other hand, a victory of the opposition Socialist Party could result in the softening of some austerity measures but is unlikely to bring a whole reversal of the key policies decided in conjunction with the European Union (EU) and the International Monetary Fund (IMF) during the bailout.

Regarding the possible outcome of the elections, Analysts at Credit Suisse details:

In our view, an outright majority is unlikely, with opinion polls indicating a hung parliament. Therefore, a grand coalition, a centre-left coalition, or a minority government are the most plausible options. Despite the pressures from the President for a grand coalition government between the Social Democrats and Socialists, their respective leaders have widely excluded such a possibility during the electoral campaign. […] A centre-left coalition also seems unlikely, given the Communists have ideological acrimonies towards the Socialists, and divergences look fairly big, at this stage. [...] Finally, the chance of a minority government is not negligible, with the government asking for support for each piece of legislation, as we saw in the past. However, President Anibal Cavaco Silva has repeatedly refused a minority government, calling for stability.

If the elections produced a minority government, this would significantly slowdown the pace of structural reforms. However, neither that nor any of the other potential outcomes is expected to hinder the recovery of Portugal’s economy.

The Bank of Portugal expects the economy to expand 1.7% in 2015 and 1.9% in 2016. The panel of analysts we surveyed for this month’s Consensus Forecast left their 2015 GDP growth forecast unchanged at 1.6%. For 2016, the panel foresees the economy growing at a slightly-higher 1.8%.

Author:, Economist

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