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MNI (London)
--Downside Risks Persist, But "External": BoP Official
--Fiscal Consolidation Key To Continuation
--ECB MonPol Contributed To Lower Debt Spreads
--Tax Cut Benefits Must Be Assessed, Spending Curbed
By Silvia Marchetti
     ROME (MNI) - Portugal's economy should continue on a path of moderate
growth in coming years but downside risks are present and pursuing fiscal
adjustment remains paramount, Isabel Horta Correia, Head of the Economics and
Research Department at Banco de Portugal, told MNI in an interview.
     Although the overall growth outlook is rosy, mainly "external" downside
risks are always present, Correia said. 
     "A scenario of lower growth in the euro area and in the world economy in
general, associated or not with the materialization of protectionist tensions,
would penalize the Portuguese economy, especially in a scenario where export
dynamics has been a major driver for growth," she warned.
     Correia acknowledged how a mix of factors had contributed to Portugal's
near miraculous economic recovery in the past 7 years, with growth hitting 2.7%
in 2017.
     "This path has been accompanied by a progressive consolidation of the
fiscal balance, small surpluses in the current plus capital account and market
share gains in the exports of goods and services".
     During the Financial and Economic Assistance Programme (2011-2014),
Portugal witnessed an unprecedented fiscal consolidation, she argued. 
     The structural primary balance improved by around 10% of GDP in cumulative
terms, and once out of the programme, the recovery and the decline in interest
payments contributed to a further improvement in the headline deficit, last year
reaching a historically low level 0.9% of GDP.
     In its recent economic projections, the Bank of Portugal predicts GDP to
grow 2.3% this year and then 1.9% in 2019.
     According to Correia, THE European Central Bank's monetary policy in recent
years has certainly helped, particularly getting the debt curve back to a degree
of normalcy.
     "The normalisation of Portuguese debt spreads in the recent past is for
sure a reflection of the positive fiscal developments, in a favourable
environment shaped by the ECB's monetary policy measures," said Correia.
     It remained crucial not to squander results, she said, by timely committing
to fiscal targets, and in particular boosting debt reduction, as the positive
economic outlook offers a door of opportunity.
     "In the short run, public finances will continue to benefit from the
favourable momentum in terms of economic conditions and developments in interest
payments. However, the public debt ratio, already in a sustained declining
trend, remains very high," Correia noted.
     Portugal's commitment in further pursuing European fiscal requirements by
adjusting public finances while supporting growth remains a pillar of the
country's economic policy guidelines.
     "As such, a prudent fiscal policy should be envisaged for the coming years,
in order to maintain public finances sustainable and allow for the fulfilment of
European commitments," she said.
     Moving forward, Correia noted, the country's fiscal policy should target
preserving hard-won investor confidence by implementing a virtuous, balanced
economic strategy.
     "A prudent fiscal policy is advisable: the benefits of tax reductions
should be assessed carefully and a tight control of government expenditure
growth should be maintained, if possible anchored on an efficient use of
available resources," she said.
     "To this aim, fiscal-structural reforms could provide a help, like a
comprehensive public spending review and the in-time implementation of the new
budgetary framework law," Correia concluded.
--MNI London Bureau; tel: +44 203-586-2225; email:
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