Portugal’s credit rating outlook was raised to stable from negative by Standard & Poor’s, which said European lenders will probably extend support to the government and make the nation’s fiscal tightening “more sustainable.”
S&P affirmed the nation’s BB long-term sovereign credit rating in a statement released today. That’s the same level as Hungary and Macedonia and two steps below investment grade, according to data compiled by Bloomberg.
“The outlook revision reflects additional evidence that European institutions will continue to support Portugal’s adjustment program, given the government’s commitment to budgetary and structural reforms,” S&P said in the statement.
Portugal may get an additional year to narrow its budget deficit as the country’s economic outlook worsens, Finance Minister Vitor Gaspar said Feb. 20. He estimated the gross domestic product forecast for 2013 may be revised lower by about 1 percentage point during a review of the aid program that began Feb. 25. The government’s last estimate was for GDP to contract 1 percent in 2013 before expanding 0.8 percent in 2014.
Portugal’s official lenders are likely to adjust the nation’s “fiscal consolidation path to allow for weaker-than previously-assumed economic performance,” S&P said. “In our opinion, this makes Portugal’s adjustment process more sustainable, both economically and socially, and reduces the risk that it will not comply with the program.”
Portugal’s jobless rate rose to 16.9 percent in the fourth quarter. Unemployment averaged 15.7 percent in 2012, and the government predicts it will increase to 16.4 percent this year. The euro-area jobless rate rose to a record 11.9 percent in January from a revised 11.8 percent in December, the EU’s statistics office said this month.
“The key really is that S&P is leading the other two ratings agencies with this move so that at the margin helps with euro sentiment,” said Sue Trinh, a Hong Kong-based senior currency strategist at Royal Bank of Canada. The other two ratings companies “have Portugal on negative outlook still.”
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