Public debt is set to reach 128.5 percent of GDP (gross domestic product) this year, according to forecasts from the European Commission. Meanwhile, the savings rate of households is forecast to decrease 0.2 percent in 2017 from last year, though it’s seen rising slightly in 2018.
Since 2015, the incumbent socialist government has scrapped many austerity measures implemented during the bailout years including reversing public sector wages. Prime Minister Antonio Costa has shifted the focus of the economy towards higher consumer spending since taking office nearly two years ago. Last Saturday he promised to include higher salaries in the upcoming 2018 budget just as the country heads towards local elections after the summer.
Teixeira warned: “Any shock in interest rates could endanger the recovery of the country that’s for sure because the overall government debt is at about 130 percent, which is the third largest in terms of GDP just below Italy and Greece (in the euro zone).”
“The banking sector is still burdened by lot of non-performing loans,” Teixeira added.
Both high debt levels and bad loans endanger the economic recovery. However, for the time being, Portugal seems attractive to investors with tourism and real estate the top areas for investment.