The Portuguese economy grew on a quarterly basis for the second quarter in a row in the period July-September, suggesting that activity has steadied.
According to preliminary figures released Thursday by the National Statistics Institute (INE), GDP advanced 0.2 percent in the third quarter from the previous three months when there was a surprisingly strong gain of 1.1 percent.
The INE said there was a less negative contribution from domestic demand, largely as a result of a less marked decline in consumer spending. The contribution of net trade – imports minus exports – fell as a result of higher imports of goods and services.
On an annual basis, GDP was down 1.0 percent in the third quarter after falling 2.0 percent in the previous three months.
The government last month revised its estimate for the contraction in GDP for this year to 1.8 percent from 2.3 percent previously and raised its forecast for GDP growth for next year to 0.8 percent from 0.6 percent.
In its latest review of the government’s compliance with the terms of its 78-billion-euro bailout, the IMF said: “Recent economic data signal that the economy may have bottomed out.”
The path to regaining full market access next May is narrow”
The review, which was released on Wednesday, suggested that salaries may have to fall further to improve Portugal’s competitiveness. “Because raising productivity takes time, improving competitiveness also requires reducing production costs, including wages,” the report said.
Portugal has been rocked by a series of protests and strikes against the latest austerity measures included in the 2014 budget, which include further pay cuts for public sector workers earning over 600 euros a month.
Despite the pain caused by the draconian measures already adopted, the IMF also said that “although a critical mass of reforms is now in place, staff expressed concerns that the reform agenda may not be sufficiently ambitious.”
The head of the IMF’s mission to Portugal, Subir Lall, pointed out that with Portugal due to the return to the financial markets next year after the current assistance program with the IMF ends in May, a number of problems remain, although he stopped short of suggesting the possible need for a second bailout. “The path to regaining full market access when the program ends next May is narrow,” the report said.
The IMF acknowledged that the center-right Social Democrat Party of Prime Minister Pedro Passos Coelho had achieved a lot but insisted that more needs to be done to remove structural “rigidities.”
The risks the IMF highlighted include the possibility of the Constitutional Court throwing out some of the measures included in the 2014 budget, as it has done with previous austerity reforms included in previous budgets. The Court is due to rule on the legality of the further wage cuts for public sector workers.