Citywire for Financial Professionals
Stay connected:

View the article online at

Portugal debt woes grow as economy now seen shrinking in 2011

Portugal’s prime minister Jose Socrates insists the country does not need a bailout but his comments are undermined as the country's central bank now expects Portugal to fall back into recession next year. 

Portugal debt woes grow as economy now seen shrinking in 2011

Portugal’s prime minister Jose Socrates insists his country doesn’t need a bailout and is cutting its debt faster than promised.

However, his comments fall on deaf ears as the country's central bank now expects the country to fall back into recession next year.

In its latest quarterly update, the Banco de Portugal says it thinks the economy will shrink 1.3% in 2011 as the far-reaching spending cuts announced by the government begin to take their toll. In the previous bulletin it said the economy would not grow this year.

Stock markets shrugged off the more pessimistic forecasts as many market watchers now believe a bailout – reported to be anywhere between €50 billion and €100 billion euros – is just days away.

But the news is unlikely to have gone down well with the current government which has been trying to convince anyone who will listen that its aggressive spending cuts mean the country’s budget deficit – the gap between income and spending – will be lower than the 7.3% level targeted for 2010.

Socrates said on Tuesday that tax receipts had been higher than anticipated while spending had been lower than forecast.

He said Portugal ‘won't ask for any financial help because it's not necessary.’

Commentators point out that that is precisely what Ireland said in the weeks before it accepted a €90 billion bailout last November and Greece said in the spring before it bowed to market pressure and accepted a €120 billion handout.

Kathleen Brooks, research director at at, said: ‘The continual spate of officials denying that Portugal will need a bailout sound hollow at best, and no one would be surprised to see Portugal apply for funds by as early as the end of this week.’

And on the government debt markets the interest rates, or yields, that investors are demanding on ten-year loans to Portugal is now 7.28%, close to the highs of 7.36% back in November. The cost of insuring money lent to the Portuguese government has also been soaring close to all-time highs.

That has prompted the European Central Bank to start buying Portuguese debt and has sparked reassurances from China and Japan that they too will buy the debt to try and prop up prices. 

Meanwhile German chancellor Angela Merkel has called on investors to remain calm stressing Portugal has taken ‘very important measures’ to address its problems

Sign in / register to view full article on one page

2 comments so far. Why not have your say?

William Bishop

Jan 12, 2011 at 13:04

An essential in dealing with financial crises is for the relevant authorities to get "ahead of the curve" by exceeding market expectations in terms of the size and speed of response. Thanks to political fragmentation and failure to understand the characteristics of markets, the eurozone has remained obstinately behind the curve for the past year, and there is no sign of that changing.

report this


Jan 13, 2011 at 06:36

More bandaid - faith in fiat money is being undermined as country's governments fail to face the music and take the medicine now.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet