Week ahead & in review: ECB’s candy

Week in review

The ECB has sent equity markets up and the euro as president Draghi stated that the quantitative easing programme may last beyond 2016. The share limit on individual bond issuance purchases has also been raised from the initial limit of 25% to 33%, subject to a case-by-case verification that this would not create a situation whereby the Eurosystem would have blocking minority power, in which case the issue share limit would remain at 25%.

This week’s news is due to rising fears that the instability in emerging markets, particularly China, is likely to last beyond the short term, which has led to a downgrade in the ECB staff growth and inflation forecasts: growth is now predicted to be 1.4% in 2015 and 1.7% in 2016, and inflation forecasts point to 0.1% in 2015 and 1.1% in 2016. Though markets have reacted enthusiastically to this announcement, volatility is bound to remain high, driven by the situation in emerging markets and diverging paths in monetary policy in Europe and in the U.S.

In Portugal, Q2 GDP was confirmed at 0.4%qoq and 1.5%yoy, as in Q1. The details show that private consumption was up 1.1%qoq (3.3%yoy) and public consumption up 0.8%qoq (+0.5%yoy). Investment (GFCF) was down 1.5%qoq (+3.9%yoy) but stockbuilding rose to €167 mn. On the external front, exports were up 3.7%qoq (7.8%yoy), but imports rose faster at 5.1%qoq (12.3%yoy), due to the rise in domestic demand. Looking at contributions to quarterly GDP growth, the largest contribution came from exports, +1.6 p.p., followed by private consumption with +0.9 p.p. Gross fixed capital formation recorded a small negative contribution of 0.2 p.p., and imports a rather large one with -2.2 p.p. These numbers are consistent with a current recovery driven by exports and by domestic demand, particularly consumption, that has benefited from the rise in employment and in wages. Exports of goods and services in volume hit a record of €68.6bn in 2014 and they are due to beat another record this year.

According to a note issued by the Parliament’s techncial unit of the Budget, the relevant Government’s deficit for the Exessive Deficit Procedure (EDP) is estimated at 4.9% of GDP in the first semester of 2015, 1.4 pp lower than the same period of the previous year, but above the target for the whole year of 2.8% of GDP, including one-off measures. These type of measures aggravated in 0.2 pp the forecast of 4.9% of GDP until June and include two injections of capital (Carris and Banco Efisa) and a guarantee to the Mutual Contra-Guarantee Fund. This value is allegedly explained by a worst-than-expected execution both in fiscal revenues (despite the good behavior if VAT and households’ income tax (IRS)) and in the Government’s expenditure. In nominal terms, the deficit already reached 80% of the predicted for 2015. Although the second semester traditionally yields a better execution, these news put some risks on the initial Government’s target: according to the Unit, to achieve the annual target set for 2015, in the second half the budget deficit could not exceed 0.7% of GDP, or 1.0% of GDP including one-off, a fiscal performance that seems particularly demanding and without preecedents in the previous years. However, even if the deficit derrails from the target, it should not be far from the 3% of GDP required by the EDP.


Week ahead


  • 8 Sept: Eurozone National Accounts 2nd estimate – Eurostat
  • 9 Sept: International trade in goods, July (Portugal) – National Statistics
  • 10 September: Inflation, August (Portugal) – National Statistics