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Portugal's austerity measures kicking in

According to a press release by the Portuguese Ministry of Finance, the public administration deficit suffered a decrease of 58.6% in the first month of 2011, in comparison with the same month of last year.

According to the same press-release, overall, the sub-state deficit suffered a 30% contraction in the same period.
 
Overall, the tax increases that were implemented since the beginning of the year, led to an increase in revenues of about 14.4%, and the budget cuts to a  decrease in public spending of about 2.6%, although it should be noted that budget cuts will only take full effect in the insuing months, according to Portugal's Diario Economico.

It seems that, for now, the Portuguese government is being successfull in sticking to its deficit reduction targets, which is supposed to have been less than expected in 2010, according to the Wall Street Journal, and of about 7% of GDP. Portugal's government's budget deficit  benchmark for 2011 is 4.6%.

This is also good news in the political front, as the leading opposition party, PSD, said it would only back the government if it achieved its budget deficit cuts.

The biggest worry now is whether the austerity measures will lead the country to a recession, or not. Although the country's economy contracted by 0.3% of GDP in the last quarter of 2010, it grew by 1.4% on a yearly basis, outperforming all other Club Med countries, as the WSJ, and the Eurostat, report, although the Eurostat reports only a 1.2% growth. The contraction seen in the last quarter could have been due to seasonal aspects, as reported for other countries. 

According to RTT news Industrial production, which employs roughly 30% of the active population, saw an growth of 3.3% in December, further from an increase of 0.9% in November.

According to eGov monitor, Portugal's industrial production increase was amongst the highest in the EU, having only been outpaced by Estonia, which saw a growth of 4.2%.
 
This data could provide the country with some breathing room in its attempt to escape the financial crisis that is affecting the Eurozone.

If the government sticks to its deficit cut benchmarks, this will lower the deficit to 4.6% of GDP, not too far from the 3% line envisaged in the Maastricht Treaty.

The Portuguese government is expected to implement a series of new reforms to relaunch the economy, including labour reforms, as reported by Bloomberg and reducing the number of municipalities in the country, as reported by Publico  

The decrease in the number of parishes in the Municipality of Lisbon, the capital city, which has already been approved in the city council,  is set to be the example to follow by the rest of the country.

However, some of these reforms, more specifically, the labour market ones, are only expected to happen by March,  due to political constraints, as the recently reelected President, Anibal Cavaco Silva, will only regain its full powers, on the 10th of March.





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