Leading indicators released today remain consistent with a continued slow recovery in H2. Consumer confidence hit the highest level since 2002, after a small increase in October. Hard data came out on the weak side after stronger readings in recent months. Industrial production is down by 1.3% compared with a year ago (falling from +3.5% y/y in August), while retail sales are up by 2.0% y/y.
The Portuguese economy bottomed in 2013, after experiencing 11 consecutive quarters with negative growth. We expect GDP to increase 0.9% this year. Portuguese GDP increased 0.3% q/q and 0.9% y/y in Q2. We forecast growth will pick up next year, with GDP increasing 1.8%. In particular, private consumption is set to contribute increasingly to GDP after being a drag over the past couple of years.
Similar to Ireland, Portugal has made a clean exit, achieved a high cash balance and eliminated the current account deficit and has a strong commitment from political leaders. Like Ireland, we expect Portugal to be able to harvest the efforts in the form of a full return to the investment grade universe next year.
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