Updated stability programme of Portugal, 2005-2009 - Main contents

EN

Official Journal of the European Union

C 82/31

On 14 March 2006 the Council examined the updated stability programme of Portugal, which covers the period 2005 to 2009.

After averaging 4 % per year over the period 1995-2000, accompanied by a pro-cyclical fiscal expansion, Portuguese economic growth declined significantly to only 0,5 % per year between 2001 and 2005, lagging behind the euro area average. GDP per capita in purchasing power terms is expected to have fallen below 70 % of the area average in 2005. Apart from adverse cyclical influences from abroad, the subdued performance reflects a weak competitive position, which explains the sizeable external deficit, and the low potential growth. The fiscal position has been weak since the turn of the decade, with the persistence of a high structural deficit.

On 20 September 2005, the Council decided that Portugal was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2008. Following the expiry of the six-month period foreseen by the recommendation, the Commission is due to carry out an assessment of the action taken by the Portuguese authorities in order to achieve the 2006 deficit target. In its opinion of 12 July 2005 on the previous update of the stability programme, covering the period 2005-2009, the Council invited Portugal to limit the deterioration of the fiscal position in 2005; achieve a sustained correction of the excessive deficit, taking a substantial step in 2006; bring the gross debt ratio onto a firm downward path; control the evolution of expenditure and improve the quality and ensure the long-term sustainability of public finances; and to further improve the processing of general government data.

In 2005, the general government deficit is estimated to have reached 6 % of GDP according to the Commission services' autumn 2005 forecast, against a target of 6,2 % of GDP set in the previous update of June 2005. This small difference is entirely due to an upward revision of the GDP series. In addition to the increase in expenditure, the sharp deterioration from the previous years was largely due to the government no longer raising revenues through sizeable one-off measures.

The programme provides the compulsory data required for stability and convergence programmes specified in the new code of conduct, although it deviates on material points from the model structure (2).

The macroeconomic scenario presented in the update projects real GDP growth to pick up over the programme period, from 0,5 % in 2005 to 1,1 % in 2006 and 1,8 % in 2007 to eventually 3 % in 2009. Growth is assumed to be driven by domestic demand and exports, although the external contribution is expected to be close to neutral over the programme period. The negative output gap is foreseen to narrow from around -2,5 % of GDP in 2006-2007 to less than -1 % at the programme horizon. Assessed against currently available information, the programme's growth assumptions are favourable, especially in the outer years of the programme. Inflationary pressures are foreseen to remain low, but there are some risks for 2006 and...