Fitch maintains Portugal’s rating at A- but raises outlook to positive – Markets

Fitch has decided to maintain Portugal’s rating at A-, according to the review published this Friday, raising the outlook to positive. The agency thus maintains the sovereign debt rating at four levels above “junk”, after having raised it to level A in September 2023 and maintained the rating in the last assessment, in March.

The ratings agency states that the change in outlook to positive rreflects “continued progress in reducing public debt, a record of commitment to prudent fiscal policy and continued deleveragingwhich reduce Portugal’s vulnerabilities”.

Fitch highlights the reduction in the State’s debt, saying that it expects the “moderate economic growth and a modest budget surplus” will reduce debt to 95.8% of GDP by the end of 2024facing 99.1% by the end of 2023.

For the agency, Portugal will continue to have a better budgetary performance than its EU peers. Fitch expects the surplus to fall to 0.2% in 2024, from 1.2% in 2023, after the government “responded to some long-standing social demands”, and the following years should see a return to deficits of around 0.2%. However, it emphasizes that the executive “remains committed to sustaining modest surpluses over the medium term.”

Regarding the political scenario, despite the fact that the “minority position of the government” results in “uncertainty”, including in relation to the budget, the The agency continues to have as its base scenario the approval of the budget proposal. However, he warns that the government may have to resort to twelfths, which would lead to a “tighter fiscal policy” and “delays in policy implementation”. Still, he sees a “low risk” of early elections next year.

As for growth, Fitch points to a slowdown caused by weak net exports. The agency forecasts growth of 1.7% against 2.3% in 2023, driven by private consumption and investment, the latter benefiting from the RRP. Growth is expected to accelerate to 1.9% in 2025 and 2026.

Despite the slowdown in growth, the labor market is expected to remain resilient, with Fitch forecasting a slight increase in the unemployment rate to 6.66% in 2024Inflation is expected to slow to 2.6% in 2024 and stabilize at around 2% in 2025 and 2026.