Portugal Budget Deficit Narrows

Portugal’s budget deficit narrowed to 1.4% of gross domestic product in the 12 months ended in June from 1.6% at the end of the first quarter, largely in line with the deficit target for this year, official data showed.

The National Statistics Institute, which confirmed the official budget deficit estimate for 2017 at 1.5%, said that in the first half alone the deficit fell to 1.9% of GDP from 3.1% in the same period of 2016, Reuters reported.

INE said that in the 12 months to June, revenues rose 0.3% while spending edged 0.1% lower from March. The INE also said that its deficit estimate does not include any impact from the recapitalization of state-owned bank Caixa Geral de Depositos by the state worth around €4 billion ($4.78 billion), or 2.1% of GDP.

The government has said it expects Brussels to disregard the recapitalization in this year’s deficit.

Last year, the budget gap narrowed to 2%–the country’s best result since at least 1975, leading the European Commission to end a disciplinary process against Portugal for running excessive deficits of over 3%.

The Socialist government expects economic growth to accelerate to over 2% this year from 1.4% in 2016.

Portugal’s debt was on a tear this week after Standard & Poor’s became the first of the three main ratings agencies since the eurozone crisis to move the sovereign back into investment-grade, and some say the market is now ripe for a syndication.

The one-notch upgrade to BBB- led to a rally in Portugal’s yields, with the 10-year dropping to a 2.36% weekly low last Wednesday, and the gap between itself and other peripheral sovereigns, such as Italy, narrowing to a low for the year.

Seven years after sliding into the swamp of depression, Portugal is still a rich country, at least according to one measure, per capita GDP, which stood at $22,347 in 2016. That’s 177% of the world’s average, and close to its all-time high of $22,829 in 2008, according to Tradingeconomics.com.