Political turmoil in Portugal will delay the execution of some EU recovery funding and freeze key stimulus measures planned for next year. Consequently, we will lower our 2022 growth outlook to around 4.5% from 5.2%. A large slice of the lost output should be recouped in 2023-2024 after a new government resumes spending the EU money.
What you will learn:
- A key risk is that a new government may decide to depart from the current plan, further hampering, or even putting in jeopardy, disbursement of the recovery funds.
- Although the political crisis is not welcome news for investors, the initial response from markets has been muted.
- Portugal’s 10-year bond yields have risen in recent days, but it doesn’t look like Portugal is being singled-out – the increase is similar to that affecting other countries in the eurozone periphery.