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‘Portugal's got talent’ says Barclays

barclays2Barclays bank has raised its growth estimate for Portugal, now predicting 2.9% growth in 2017, and has praised the resilience of the Portuguese government, the implementation of reforms and the recapitalisation of the banking sector.

In an analysis titled "Portugal's Got Talent," the British bank praises the performance of António Costa's policy of restraint and his implementation of reforms which has allowed the country to grow at a good pace.

In fact, stated Barclays, there are “a handful of reasons to be optimistic."

"The socialist minority government has shown resilience ... the banking sector has been recapitalised ... fiscal performance in 2016 has exceeded the European Commission's target," notes Barclays in a glowing tribute to Portugal’s economic and political position.

In addition, the bank points out, the country has a primary surplus of more than 2% of GDP, the first quarter's growth was 1% and the outlook for the second quarter is "promising." As a result, "the dynamics of public debt have become less fragile."

Barclays admits that some negative risks persist for the Portuguese economy, including the potential for political crisis after the local elections which could make it difficult to approve the 2018 budget.

Secondly, the banking sector may provide some bad news, especially if the Novo Banco sale is scrapped.

"Thirdly, market confidence has improved thanks to the European Central Bank’s quantitative easing, budgetary efforts and past reforms, but confidence is intrinsically fragile for highly leveraged countries - a shock may change perceptions and lead Portugal back to a bad place where markets demand high interest rates and debt dynamics do not stabilise," concludes Barclays which did point out the country’s a debt of more than 130% of GDP.

Barclays also noted that the major rating agencies may take one to two years to remove Portugal's classification from the current ‘junk’ status.

"The current 'stable outlook' of the three agencies means that upward revisions will take 12 to 24 months at best," reads the Barclays note.