Portugal’s declining risks should return its complement of investment grades

It won the Euros, it won Eurovision – now it is time to win back its lost investment grades.

  • By Euromoney Country Risk, Jeremy Weltman
  • 09 Jun 2017
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Country risk experts have become gradually more confident about Portugal’s investor prospects in recent years, despite the political risks tied to a minority Socialist Party government relying on hard left allies.

Its risk score has increased since exiting the bailout it received in 2011, with the return to international markets notably improving the capital access score.

It hasn’t been an easy ride, but Portugal is now in a much better place, with risk experts now encouraged by the economy recovering.

Always a favourite of European, especially British, visitors, a record year for tourism inflows and spending is expected this year, taking full advantage of its reputation for safety.

GDP increased by a cool 1% on a seasonally adjusted, real-terms basis in Q1 2017, levering the year-on-year growth rate up to 2.8%, by latching onto Spain’s continuing strong growth and the wider upturn in Europe.

“This makes it very likely that growth for the whole of 2017 will be between 2.0% and 2.5%,” says Miriam Montañez, an economist at BBVA Research. That compares with 1.4% growth in 2016, and its best performance since the global financial crisis erupted in 2007/08.

The labour market is responding favourably, with unemployment falling to 503,700 (9.8% of the labour force) in April, from 592,400 (11.6%) in April 2016, easing the welfare burden, which is reinforcing the fiscal improvement.

The debt burden is unmistakeably high at 130% of GDP, and the banking sector still fragile, but successive governments have made great strides in rectifying the fiscal mess.

The general government deficit has narrowed from €12 billion (7.2% of GDP) to €3.7 billion (2% of GDP) in just two years through to the end of 2016.

European Commission forecasts show it falling again, to 1.8% this year, despite the pressures to increase public spending, including rises in wages and pensions to pacify the left and foment greater social cohesion. This will also support consumer spending.

Barring DBRS, which does award an investment grade, the other credit rating agencies are slow to react.

According to Euromoney’s crowd-sourcing survey, Portugal is already nestling comfortably among other investment grades based on its risk score, placed 50th in the global risk rankings.

That’s less than half a point behind A-rated Botswana, and above Italy, which has its own banking sector and political problems, and where the economy is weaker and the debt burden higher:

Portugal ECR Jun17

Portugal’s scores for most political factors are stronger than Italy’s, including corruption, institutional risk, the regulatory and policymaking environment, and political stability.

Policymaking might not be entirely investor friendly, but is being conducted in a cordial atmosphere of consensus and has lessened the risk of early elections.

On growth and employment/unemployment, too, Portugal’s scores are noticeably higher. 

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.

  • By Euromoney Country Risk, Jeremy Weltman
  • 09 Jun 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.82%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%