Week ahead 7-11 April

WEEK IN REVIEW

In Portugal, the deficit was 4.9% of GDP in 2013, well below the 5.5% limit that had been re-negotiated in 2012. Part of this good performance is due to the fiscal amnesty that entered into force in the last quarter of the year, yielding revenues of EUR1.3bn. On the other hand, Government spending was hit by a one-off EUR0.7bn transfer to Portuguese bank BANIF. This means that the starting point for the Portuguese deficit in 2014 is about 5.3% of GDP. The Government’s objective for 2014 is to reduce the deficit to 4% of GDP. The unemployment rate remained unchanged for the third consecutive month at 15.3% in February.

In the Portuguese-speaking world, Brazil’s Central Bank rose its main rate (selic) for the 9th time to 11%. The hiking cycle started about a year ago as the Central Bank tried to stave off rapidly rising inflation, despite weak growth. The wording of the press release suggests that the Central Bank may be done for now, but a further unexpected rise in inflation could lead it to act again.

In the euro are, the ECB has left its main rates unchanged this week, though inflation unexpectedly fell to 0.5% in March. The tone of the press conference was decidedly dovish though, as President Draghi reiterated that risks to growth are on the downside and that the bank will use all means at its disposal, including quantitative easing, in case it’s necessary. Given that the Bundesbank’s President appears to be willing to engage in QE, the possibility of further action int he coming months is now more realistic. President Draghi also appeared to be more concerned about the rise in the euro, which should prevent much more strengthening from current levels. President Draghi said the ECB expects inflation to pick up around Easter in April and to rise gradually over the next few months, though remaining low. The unemployment rate remained stable at 11.9%, the same rate since October 2013, which reveals that the very moderate recovery so far has not been enough to translate into a significant improvement in the labour market.

WEEK AHEAD

It’s a thin week in terms of data releases for Europe. A few important data points will be released for Portugal, which should help get some clarity on the growth/deflation dilemma.

9 April: February international trade for Portugal: imports have been rising faster in the last few months which means that net trade may weaken in the coming months, despite resilient exports

10 April: Portuguese March CPI inflation: yoy inflation was negative en February and it could remaining negative territory in March, due to the base effect from Easter being in March last year. However, we would expect some pick-up in April.