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Dark cloud lingers over Portugal’s export-led economy due to trade disputes

Portugal is often described as somewhat of a success story in the Eurozone after embarking on deep austerity measures. The country’s economy grew 2.8% in 2017 and 2.1% in 2018.

This is important, as voters are heading to the polling stations this Sunday. Opinion polls show that the ruling Socialist party is likely to be re-elected, but the real question is whether it will get enough support for an outright majority.

With this in mind, economists are speculating how long Portugal’s economic recovery will last with a new political cycle right around the corner.

Portugal’s remarkable recovery thanks austerity measures in the wake of the sovereign debt crisis allowed us to enjoy growth rates above the region’s average for the last two years. However, recent economic achievements are largely on the back of higher export levels — something that could become a problem given the ongoing trade disputes worldwide.

Portugal “is more exposed to global trade now than before the crisis,” Ana Andrade, analyst at the Economist Intelligence Unit, revealed earlier this week.

“The share of exports has grown. Portugal is (now) more integrated in the global trade system,” she said.

In 2010, one year prior to requesting financial assistance from the IMF and the EU, Portugal exported about 37.3 billion euros worth of produce. Since then, exports have increased almost every year, reaching about 58 billion euros in 2018, according to preliminary data. Portuguese exports accounted for more than 40% of the country’s growth rate in 2018 compared to almost 30% in 2010.

“Whilst the Portuguese economy is projected to grow faster than that of the euro zone as a whole, a sharper than expected global and European downturn would expose the persistent underlying macroeconomic imbalances,” Michiel van der Veen, an economist at RaboResearch, revealed..

His forecasts point to a growth rate of 1.7% in 2019 and 1.2% in 2020. To contrast, Portugal grew 2.8% in 2017 and 2.1% in 2018.

Why does all this matter though in the context of the looming election? Voters are heading to elect their new political leader this Sunday, and opinion polls show that the ruling Socialist party is likely to be re-elected, but the real question is whether it will get enough support for an outright majority.

“It will depend on what kind of government gets formed, but I would expect a substantial degree of policy continuity in the absence of economic shocks,” said Antonio Barroso, managing director at research firm Teneo,, when asked about what a Socialist-led government will mean for economic policy.

Antonio Costa, the Socialist leader and current prime minister, has vowed to keep reducing the nation’s public debt. This grew substantially in the wake of the debt crisis, reaching a peak of 130% of its GDP in 2014.

Costa’s program says the aim is to bring the current 120% of debt to GDP “closer to 100% of GDP by the end of the next mandate” in 2023.

“To meet fiscal targets Costa will be dependent on continuing economic growth,” van der Veen from RaboResearch said.

“However, economic growth may find it hard to maintain its current momentum as the U.S.-China trade war gets into full swing and the euro area economy slows,” he explained.

A clear picture of the results should emerge by 10 p.m. on Sunday.