Week in review and Week ahead: 14-18 July


Despite having taken radical measures on its main rates last month, the ECB continues under pressure to expand its quantitative easing due to continued fears of deflation, sluggish growth, and a strong euro. Nationally, fallout from revelations of significant liquidity issues in the Espírito Santo Financial Group (ESFG) continued, with BES shares falling 17% on Thursday before regulators stopped trade. Both ESFG and BES have lost half their value in the last month. Amidst tensions about leadership succession and uncertainty about the extent of exposure, negotiations with the central bank about possible resolutions continued. Both BES and the central bank assured depositors that the bank has sufficient capital and is isolated from the difficulties of the rest of the ESFG. In this context the ten-year yield for Portuguese bonds rose 13 basis points to its highest level in three months (3.9%), ahead of a planned sale between 1-1.25 billion Euros in short-term bonds next Wednesday.

The June Consumer Price Index (CPI) for Portugal reported prices fell 0.4%yoy, identical to May’s numbers and negative for now the fifth consecutive month. The continual fall in prices confirms that Portugal is at risk of deflation. It may be too soon to see if the ECB’s rate changes at the beginning of June will counteract this trend.


The July report of the Portuguese Investment Survey predicts a 2.4% nominal growth in business investment in 2014, a rise of 1.3 p.p. from the prediction obtained in the previous survey. The survey based on self-reported data also indicates that investment fell 4.0% in 2013, an upward adjustment of 4.3 pp from the previously reported value (-8.3%). Although its relative importance diminished, businesses cited expansion of productive capacity as the most frequent goal of investment, and investments were mainly self-financed (66.9% and 64.3% in 2013 and 2014 respectively). Firms reported that the main limitation in investing was a deterioration of sales prospects (51.8% in 2013 and 52.6% in 2014), followed by uncertainty about the profitability of potential investments (18.3% and 18.4%) and difficulty in obtaining bank credit (10.8% and 9.9%). Limitations to investing were felt most in the construction industry (72.4% firms reported limitations), water and sanitation industry (70.6%), and the mining industry (66.6%). In this context, higher purchasing power, orientation to profitable markets, and the development of capital markets may foster investment in Portugal.

May exports fell 3.6%yoy while imports increased 1.9%yoy. However this fall in exports is due largely to a steep drop in combustible exports and imports. Excluding combustibles, exports increased slightly 0.2%yoy and imports grew 3.8%yoy (3.6%yoy and 2.5%yoy respectively in April).These numbers lay out additional downside risks on Q2 GDP and confirms the stagnation of goods’ account in the last few months.

New statistics from Eurostat on fertility rates in Europe reported Portugal had the lowest birth rates in Europe (7.9 births per 1000 residents) in 2013, below the mortality rate (10.9 per 1000 residents). Combined with negative immigration balance, Portugal’s population decreased by sixty thousand inhabitants in 2013.

WEEK AHEAD July 14th – 18th

  • July 14: May Euro-Zone industrial production: IP rose in the Euro Area in April and May’s value will provide further information to predict Q2 GDP in Europe.
  • July 17: Harmonized CPI for the Euro area in June, which will give a broader look at the level of inflation throughout Europe as well as a first indication of the impact of the ECB’s measures last month.