On the previous Friday, Standard & Poor’s (S&P) enhanced Portugal’s credit rating from BBB+ to A-, endorsing a positive outlook. This marks the return to an ‘A’ rating for Portugal across all four key rating agencies after a thirteen-year hiatus.
Previously in September, S&P had foreshadowed this advancement by amending its perspective on Portugal’s sovereign debt from stable to positive, a stance that has been affirmed in the latest rating promotion. Approaching the forthcoming early elections, the agency expresses confidence that the successor government will adhere to strict fiscal prudence and diligent allocation of the Recovery and Resilience Plan funds.
The notable decline in public debt and commendable fiscal outcomes underpinned the decision to elevate the rating. S&P anticipates the continuation of this positive trajectory, albeit at a decelerated pace, envisioning steady economic growth fueled by the vitality of the tourism sector, enhancement in public expenditures, and revival of private consumption.
The anticipated deceleration in GDP growth from 2.3% in 2023 to 1.4% in 2024 is acknowledged, alongside a modest increase in unemployment rates to 6.7%. The projection for public investment is an ascent to 3.3% of GDP by 2024.
The agency holds an optimistic view regarding the acceleration of investments from the Recovery and Resilience Plan, deeming it unlikely that potential post-electoral political shifts would impede the allocation of the remaining €13.7 billion. Amidst global instabilities, Portugal is perceived as well-positioned to leverage reconfigurations in global supply chains, attributed to its advantageous geographic location, skilled workforce, and a significant reliance on renewable energy sources.
Additionally, a projected moderation in the real estate market is anticipated, driven by stringent financing conditions and the cessation of golden visas. While the banking sector presents contained risks, its exposure to the real estate and construction sectors introduces heightened financial stability concerns.
In the ensuing 24 months, S&P might consider a further elevation of Portugal’s debt rating, provided the nation sustains its course of current account surpluses and diminishing public debt levels.