Forex Market Commentaries - Portugal Seems To Be A Train Wreck Waiting To Happen

Portugal Seems To Be A Train Wreck Waiting To Happen

Mar 14 • Market Commentaries • 935 Views • Comments Off on Portugal Seems To Be A Train Wreck Waiting To Happen

If you stop and review the economic data release by the Portuguese government since the beginning of the month, shivers should run up your spine. Recently the EU approved the next tranche of bailout funds for Portugal, but economic indicators released in this month show a much larger economic problem brewing then the EU and IMF had calculated 18 months ago.

Portugal is beginning to see runaway inflation, increasing unemployment, contracting GDP which means huge drops in revenue and an ever growing deficit.

Portugal’s rate of inflation jumped 0.1% this past month to 3.6%, the National Statistics Institute (INE) reported earlier this week. The government projects annual inflation of 3.3% for this year. This project did not take into account when made, crude oil prices surpassing the 100.00 mark, which will have a latter effect on inflation.

The agency said that the cause of the increase last month was primarily due to increases in housing, water, electricity, gas and other petro, with the latter sector suffering a hike of 9.6% last month. Increases in VAT taxes on energy were responsible for the increase in costs, meaning that the true increase has not been adjusted for the increase in the cost of the energy..

 

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The government reported that the economy shrank 1.6% last year, 0.1% more than forecast. The government has already projected a contraction of 3.3% in 2012 GDP. The economy shrank in2011 which the INE blamed on “the performance of domestic demand”, especially of households, which shrank 5.7%.

The economy sped up its contraction in the last three months of 2011 from the previous quarter, according to Eurostat, Portugal is mirroring Greece in austerity measures imposed by the EU, ECB and IMF. A formula for disaster.

Unemployment in Portugal rose to 14.8% in January. The second highest in the EU, only exceeded by Greece who holds the record at 19.1%, with Portugal chasing at its heels. The shrinking of the economy, as austerity demands of the bailout program continues taking its toll on the country will far exceed the projected 3.3%

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