Fiscal discipline improves primary balance, creates flexibility to address social pressures
The fiscal discipline displayed in recent years enabled gradual governments to accumulate the budgetary headroom, causing some flexibility to gradually implement the measures of development. The previous advertising government took some initiative to increase salary for public sector employees and other selected professional categories. It also introduced a 1.25% permanent growth for the lowest pension, reduced corporate income tax rates to promote social benefits and extended fiscal benefits for young people, and extended fiscal benefits.
A new advertising government-led government will probably continue to balance fiscal discretion with pro-goth measures to guarantee compliance with the fiscal rules of the new European Union. To secure support from the main opposition parties, AD must probably have to consider a mixture of tax deductions for amendment of low-income houses, tight immigration policies (at the center of the political agenda of the bhega) and corporate tax cuts or for the revision of tax benefits for young workers, advocated by the Socialist Party.
While the agreement is required and possibly loosening the fiscal attitude to some extent, the scope still hopes that the government will continue to run the primary budgetary surplus in the coming years, about 1.6%of the GDP by 2030.
External and domestic political uncertainty pose risk to the future
Gradually reducing the state of financing, low inflation pressure, and the expected acceleration in the implementation of the National Recovery Scheme should support real economic growth in the coming years, which is 2.1% this year 2.1% and 1.9% scope in 2026, in line with the medium-powered growth capacity of the economy.
Major risks include delay in domestic political deadlock reforms and obstruct the deployment of European Union and unstable global trade environment. While the direct impact of high tariffs applied by the US on imports is limited to Portugal, as the total exports to the US account for less than 7% of the total good exports, the country is unsafe for the indirect impact of high tariffs and the pronouncement related uncertainty to slow down the economic growth among the main trading partners of Portugal.
For a look at all economic events today, check our economic calendar.
Alesndra Poli is an analyst in sovereign and public sector ratings Scope rating, Alvis LankarThe scope, the managing director of sovereign and public sector ratings, contributed to writing this comment.
