Portugal ready to follow Ireland's 'clean' bailout exit
PORTUGAL is increasingly likely to follow Ireland's lead and exit its bailout without a backstop, analysts have said.
The country's 10-year government bond yields fell below 5pc for the first time in more than three years last week, prompting officials in Lisbon to begin talking about copying Ireland's "clean exit".
Portugal is preparing to leave its deal in May and its banks have been building up reserves to meet EU solvency criteria, meaning they can now gradually step up lending. With financing starting to flow back into the economy, manufacturers should be able to expand their capacity to export too.
The country received a €78bn bailout when its economy hit trouble shortly after the Irish economy imploded. Many investors were convinced until recently that Portugal would need a second bailout when its current adjustment programme ends in June. Now, with yields down and exports rising, a clean exit is on the cards.
Strategists at fund manager BlackRock and Commerzbank believe Portuguese bonds are set to enjoy a powerful rally. Commerzbank estimates that the economy expanded by 0.4pc on average in the second and third quarters, outperforming Spain.
The performance, by far the best among comparable EU countries including Italy, France, Spain and Ireland, has rewarded Lisbon with a current account surplus for the first time in 20 years, an impressive swing from a deficit equivalent to 10pc of national output less than five years ago.
Reuters reported yesterday that the nation's export firms are buzzing with activity despite three years of economic crisis at home.
Relying on innovation, diversification and wages that are lower even than in Greece, small and medium-sized manufacturers have turned to markets stretching from China to Portugal's former colony of Angola to survive – and often thrive.
Their home market of 10 million people, bedevilled by high unemployment and falling living standards even for those in work, offers little growth for the foreseeable future even though Portugal is finally emerging from recession.