Portuguese debt should continue to benefit from ECB action

Portugal paid negative interest for the first time in a 10-year debt issue. Analysts consulted by Jornal Económico are optimistic about the costs of public debt in eurozone countries, highlighting the role of the European Central Bank.

The policy adopted by the European Central Bank (ECB) to help countries combat the impact of the crisis caused by the pandemic should continue to guarantee a smooth financing for Portugal, which enjoys a good reputation with investors after the upgraderating agencies in recent years, fueled by the good results of the economy and political stability. Last week, Portugal financed itself at negative rates in a ten-year debt issuance in the primary market and analysts consulted by Jornal Económico are aligned on the continuity of the central bank's action.

“Portugal, like other European partners, has the budgetary slack that the European Union allows. At these levels of yields and indebtedness, the credibility of the European Union and the ECB is the real factor that sustains the national economy. The reality of each country has, for now, a small impact on the situation, especially when compared to what happened in the last decade, where Italy, due to its volume of debt compared to the total in the euro zone, will be the only exception ”, Says Nuno Sousa Pereira, head of investments Sixty Degrees.

The analyst stresses that all countries intend to use the funds provided by the Recovery Plan, whose first funds are expected to arrive in the second half. “The national authorities have not yet exactly quantified the economic impact of previous feedlots, nor the losses associated with last summer's drop in tourism, which will be reflected in declines in domestic consumption this year. In this sense, being in unknown territory, the Portuguese Government should not have much scope for a budgetary expansion that is sufficient to solve the vast majority of the problems caused by the pandemic and the policies followed in its function ”, he adds.

For the time being, financial markets remain optimistic about the public debt of eurozone countries and interest rates on Portuguese public debt establish and renew successive historical lows, points out Paulo Rosa, a senior economist at Banco Carregosa.

“The ECB's unlimited bond purchases by the ECB partly support the public debt of southern European countries. The signals transmitted to the markets of greater European cohesion, in the last month of June, during the negotiations of the stimulus packages to the most penalized economies of the European Union, namely those of the south of Europe where the weight of the tourism and services is significant, came support the purchase of debt from southern European countries and narrow spreads in relation to German interest rates ”, he adds.

Paulo Rosa recalls that in 2021, the Portuguese State plans to issue 15 billion euros of debt in Treasury Bonds, “about 5% of the total amount of national public debt, currently around 268 billion euros, and is expected to demand remains strong in the face of the support of the ECB and the perception of European cohesion ”.

"It is not expected that the Portuguese State, supported by the ECB and the growing perception of greater European cohesion, will have difficulties in meeting the 14 billion euros of net financing needs planned for this year", he anticipates, noting that despite of the pandemic led to an increase of almost 20 billion euros in public debt - - "from around 250 million at the end of 2019 to 268 million today" -, "debt service has not risen as a result of the rate decrease interest rate that allows new issues at lower prices and already with negative interest rates in 10-year maturities ”.

Carlos Almeida, investment director at Banco Best, praises the importance of the 2019 budget surplus, considering that more than a financial cushion has allowed the strengthening of investor confidence in Portugal. “In this pandemic period, Portugal's sovereign risk remained the best, now being at better levels than its counterparts in Southern Europe. In an unparalleled situation, measures are being taken to control the pandemic situation and to minimize the negative effects of constraints on economic activity ”, he points out.

“The biggest economic stimulus is to maintain productive capacity and secure jobs. Only then will we have a faster economic recovery. To this end, the eurozone governments rely on the ECB's initiatives, which, for now, will do everything to ensure favorable financial conditions for economic activity and, at the same time, the various political initiatives of the European Commission to assist the various programs recovery and resilience as well as preserving jobs ”, he concludes.

For Pedro Lino, Optimize's chairman, “at this point the question of indebtedness or [budgetary] slack does not arise, because the ECB will support, or take measures to ensure that all debt issues are successful and at zero or zero rates. negative ”. The expert admits, however, that “there is no doubt that within four or five years we will have to address debt forgiveness worldwide, the conversion into perpetual debt held by central banks, or another way of restructuring public finances, as in this normalization of interest rates is currently impossible ”.

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