The International Monetary Fund said today that the economic recovery has slowed in Portugal over the last six months and that the country's growth is being hampered by the inability of the government to push through the agreed reform agenda.
The IMF’s report is the first since the bailout funding period ended and looks at the monitoring period during which agreed reforms have slowed now the pressure is off and all of the bailout money safely drawn down.
The two main IMF conclusions will be ignored and explained away by the government as it prepares for the forthcoming election.
The IMF could not be clearer in its criticism, stating that "the timing of reforms and of the fiscal adjustment seems to have weakened in the last six months" and, despite the measures taken during the Economic and Financial Assistance Program, "the number of reforms on the agenda are substantially unfinished," with a depressing rating of 36%.
The IMF has found it necessary to revise Portugal’s growth prospects downwards, mainly due to the ‘long pause’ in reforms.
The Government expects the Portuguese economy to grow 1.5% this year and 1.7% next year according to the State Budget and the Fiscal Strategy Document.
The less optimistic view of the IMF predicts that Portugal’s Gross Domestic Product will grow by just 1.2% and 1.3% in 2015 and 2016.
The IMF said that the Portuguese economic recovery is being driven by private consumption and that unemployment, the debt burden and weak external competitiveness of businesses will all "continue to limit economic growth."
The government led by Pedro Passos Coelho "admits to difficulty in implementing structural reforms, while agreeing that they are essential to promote employment and growth," reads the report which in this one sentence identifies the key problem but offers no solution.
Portugal's National Institute of Statistics said today that Portugal’s businesses have put the brakes on investment for 2015. This is according to intentions expressed in its Monthly Investment Survey for October 2014.
The main limiting factor in business investment identified by companies was the deterioration of sales prospects, followed by uncertainty about the return on investment.
This is notable among export driven manufacturers where investment dropped by over 3% last year and will fall further in 2015.
Due to a moribund banking sector, self-financing remains the main source of funding for investment by the companies surveyed, with nearly 70% using reserves rather than bank finance.
As the government sets out to persuade the electorate that all is well, the crucial reforms needed to make Portugal competitive simply have not happened and with this opportunity wasted, whoever wins the next election will face much the same problem that Passos Coelho has failed to tackle.
