Portugal: Fiscal position deteriorates
Economic activity moderated in the first half of 2008, as investment and export growth softened. In line with the recent intensification of the financial crisis and expectations of a significant slowing in Portugal’s export markets, activity is expected to contract until the second half of 2009, before recovering slowly in 2010. The unemployment rate is set to increase from its already high level. The sizeable negative output gap and lower food and energy prices will reduce inflation.
The fiscal position is likely to deteriorate in 2009 and 2010 as weaker economic conditions reduce revenue growth. Further fiscal consolidation and structural reforms are required in the medium term to strengthen economic performance. Greater public sector efficiency and a more favourable business environment would foster private sector confidence and economic growth.