The Week in Review & the Week Ahead: August 4-8


This week, after much anticipation, BES’s first semester report was released. The numbers are all worse than expected: total losses of 3,580 mn; exposure to GES companies of €1,570 mn; almost €2,000 mn fewer in deposits; and a capital ratio of 5%, below the mandated 7%. The structure of the recapitalization of the bank is being finalized, in the first place by increasing equity from current and new shareholders. However, if needed, the Bank of Portugal is ready to inject public capital, with €6,400 mn still in reserve if needed. The effect on the Portuguese bond market was mixed, with yields at ten years rising to 3.621% on Friday while two-year yields fell (0.738% Friday morning). This week also saw Moody’s raise its rating of Portuguese debt from Ba2 to Ba1, just below investment grade, stating that the BES’s situation likely would have little real impact on the government accounts.

The United States GDP rebounded in the second quarter, growing 4% after a dismal Q1, largely blamed on bad weather, inventory rundowns, and complications with the introduction of Obamacare. The job market has also been recovering robustly, with unemployment at 6.1% in June (7.5% in June 2013),increasing the probability that the Federal Reserve will increase interest rates soon, possibly in the second semester.

Portuguese Industrial Production fell 0.2%yoy in June after increasing 0.2%yoy in May.Overall in Q2 the IP increased 1.3%yoy, down from 2.1%yoy in Q1. The Energy sector was the only sector to record negative growth in Q2, falling 9.3%yoy after a 5.3%yoy increase in Q1, likely due to the closed Galp refinery in April.

According to Eurostat, the unemployment rate in Portugal was 14.1% of the labor force in June, falling for the fourteenth consecutive month. It was the largest decrease compared to the year before in the EU28, down 2.5 pp from 16.6% in June 2013. Youth unemployment rate in Portugal fell again from 34.7% to 33.5%, and far below (-4.5pp) the level in June 2013, 38%.


The Economic Sentiment Indicator remained fairly stable in July, increasing 0.1 to 102.2 in the Euro area. The indicator for Portugal rose slightly by 0.1 to 102.4. Confidence improvements in industry and construction sectors were offset by decreases in the service and retail industries, as well as a fall in consumer confidence.


WEEK AHEAD August 4th-8th

  • August 5: (National Statistics) Q2 employment numbers come out for Portugal, which should show amarked improvement from Q1 according to the monthly Eurostat numbers. Further details on whether this decline is due to higher employment or less active population will be important.
  • August 8: (National Statistics, Bank of Portugal) With the release of the June goods account and trade statistics, we will have a complete picture of the Q2 trade balance ahead of the release of Q2 GDP in mid-August. The goods account has stagnated in recent months, and may be a negative contributor to GDP in Q2.
  • August 14: (Eurostat) The full harmonized CPI for July will be released. Despite the ultra-loose monetary policy announced in June, inflation in the euro area continues to be very low.  Preliminary numbers this week estimated that Euro area inflation fell 0.1pp to 0.4%yoy in July (0.5%yoy in June).