Week in Review & Week Ahead: July 28 – August 1


The IMF cut its global growth forecast for 2014 from 3.7% to 3.4%, motivated by a poor first quarter in the US and weaknesses in emerging markets. Olivier Blanchard cited a still fragile recovery in Europe and Japan as causes for concern, as well as geopolitical instability in Eastern Europe and the Middle East, with consequent spikes in oil prices and jumps in long-term interest rates as the Federal Reserve considers tightening its monetary policy sooner than expected.

BES shares recovered 20% of their value on Wednesday (having lost 63% since the beginning of the crisis) after Deutsche Bank and an American hedge fund David E. Shaw purchased stakes in the bank. According to Citibank, BES’s losses are estimated to be between € 600-2,300 mn due to exposure to the Espirito Santo Financial Group, which asked for bankruptcy protection this week, and the Angolan branch of the bank, where government guarantees are uncertain. BES will present its official accounts of its losses next week.

Interest rates on Portuguese bonds stabilized at 3.67% this week, for 10-year treasury bills, below the recent peak of 3.9% but significantly above the minimum rates they had achieved in June (3.32%).

The 12-months accumulated current account almost doubled from April to May after a decline last month, and it remains positive at around 0.04% of GDP. The goods account continued leveling off, and is still in very negative territory.

At the end of Q1 2014, the government debt to GDP ratio in the euro area was 93.9%, up 1.2 percentage points from the end of Q4 2013 after two consecutive quarters of decrease. In the EU28, the ratio increased 0.8 percentage points to 88.0%. Securities (other than shares) accounted for the vast majority of government debt (79.3% in the euro area and 80.9% in the EU28). The share of intergovernmental lending due to the financial crisis was 2.4% in the euro area. Portugal had the third highest government debt to GDP ratio at the end of Q1 2014, at 135.9%, after 132.6% in the second semester of 2013. Portugal also recorded the third highest increase in the ratio, increasing by 3.9 pp since the end of Q4 2013.


The composite PMI indicator, a good indicator of GDP growth, rebounded in July, rising to a three-month high of 54.0, after falling to a six-month low of 52.8 in June. This points to a continued recovery in the euro area, with companies reporting that business had picked up again and some moderate job creation. Despite positive news for most of the euro area, the French economy continued to report contraction with output falling for the third consecutive month.

The July Consumer Confidence Indicator decreased for both the euro area (fell 0.9 points to –8.4) and the EU28 (down 1.2 points to -5.5), likely reflecting the weakness of the recovery, particular in the labour market, as well as geopolitical instability in Eastern Europe.

WEEK AHEAD July 28th – August 1st

  • July 30 (Macrometria): Portuguese Economic Monthly – July 2014 with a special article on the recent individual income tax reform. See more here.
  • July 30 (National Statistics): The Portuguese National Statistics will publish industrial production for June, which will give another indication for the direction of Q2 GDP before the official estimate is released in mid-August. Additionally, the European Commission will release its Economic Sentiment Index for July.
  • July 31: (Eurostat) June employment numbers will be released. According to the Eurostat, Portuguese unemployment rate has been declining markedly in the last few months and it will be interesting to compare these numbers with Q2 unemployment rate released by the National Statistics Office in early August.