Portugal has reached the bottom of the third tier on Euromoney Country Risk's rankings - and even that position looks precarious.
Although S&P recently reaffirmed Portugal’s BB credit rating, citing progress with structural reforms, it also maintained a negative outlook due to the downside risks associated with Spain. Indeed, the situation is looking increasingly worrisome for the Portuguese government, which had passed a fourth review of its spending cuts and reform programme with the troika back in June
As austerity bites, the recession is deepening. These developments are not lost on the Organization for Economic Cooperation and Development (OECD Offers Some Hope But Portugal's Finances Look Terrifying), which is predicting a huge contraction in real GDP this year, amounting to 3.2% (other forecasters take a similarly pessimistic view). Unemployment is soaring (to 15.4% of the labour force in June), the property market is still collapsing, and there is no sign of growth in 2013 either. Lower than expected tax collection in the first half of this year now more or less consigns the government to failure in reaching its budget deficit goal without more public spending cuts. But those cuts will only exacerbate the crisis. So, in spite of the positive gloss painted by Portuguese policymakers, Portugal will need more time, and possibly a new plan (involving stimulus), to resolve the crisis.
Tier 4 is worryingly close.
This article was origninally published by Euromoney Country Risk