Week in Review & Week Ahead: Portuguese Government’s Budget for 2015 to show some fiscal easing


The IMF has downgraded its forecasts for the world economy on the back of a downward revision to European and developing countries’ growth (see table here). US GDP growth was revised upwards. The growth forecast for the world economy has been revised downward to 3.3% in 2014, 0.4 percentage point lower than in the April forecast. The global growth projection for 2015 was lowered to 3.8%. The IMF cites weaker than expected growth in the first half of the year as the main reason for the revision. However, it also acknowledges that downside risks have risen, namely, in the short term, a worsening of geopolitical tensions (in Ukraine and the Middle East) and a reversal of recent risk spread and volatility compression in financial markets. Medium-term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets.

Data this week has supported some of the IMF fears. German industrial production fell by 4% in August relative to July and industrial orders and exports were down close to 6% over the same period, the largest declines in five years. Though these drops may be due to factories closing later than usual this year, there are still fears that the growth engine of Europe is slowing down, which could further fuel a protracted period of low inflation.



The 2015 Budget will be released on Wednesday. While the Government has stated that there is little margin for fiscal easing, a leaked draft version suggests that the special contribution that has been applied to pensions will be eliminated on pensions up to EUR 4611. Pensions and public sector wages are due to remain frozen in 2015. The Government also plans to present to Parliament a separate document dealing with a planned reduction in personal income tax over the coming years. Note that the Budget will take into consideration the introduction of SEC2010 accounts across Europe, which has changed the pattern of the Portuguese deficit and debt in the last few years. The debt ratio has remained broadly unchanged as the rise in debt was offset by a rise in the level of GDP.

This week the 2014 the Sveriges Riksbank Prize in Economic Sciences in Memory of Albert Nobel (or, in short, the Economics Nobel prize) laureate is likely to surprise everyone, as usual. However, many still try to forecast laureates. According to a forecast by Thomson Reuters based on scientific citations, this year’s laureates may be William J. Baumol and Israel M. Kirzner for their advancement of the study of entrepreneurism.

  • Economics “Nobel Prize” laureates will be announced
  • Eurozone industrial production in August will be released on Tuesday. The weakness in Germany suggests that European industrial production will also disappoint. Still, care is needed to avoid reading too much into one report, especially the August one, that is typically affected by the holidays
  • The most important economic release in Portugal in the week ahead will be the Government’s Budget for 2015, published on Wednesday 15th October
  • Several reports will be released out of the US and should confirm that the recovery is well underway. Should they disappoint, it may end speculation of an earlier than expected rise in rates