S&P removes threat to further cut Portugal’s debt rating

Agency sees growing signs of economy stabilizing

Standard & Poor’s on Friday affirmed its junk-status BB rating for Portugal’s long-term sovereign debt after withdrawing a threat to further downgrade it, but maintained its negative outlook on the rating.

Portugal is aiming to successfully exit its 78-billion-euro bailout program later this year and return to the long-term debt markets. The IGCP debt-management arm of the government successfully tested the waters last week with a 3.25-billion-euro issue of five-year bonds

S&P said it expects the center-right Social Democrat-led coalition of Prime Minister Pedro Passos Coelho to have met its deficit-reduction target of 5.5 percent of GDP last year and make progress on achieving its 4.0-percent target for this year.

“We base this expectation partly on indications that the economy has been showing signs of stabilization since mid-2013 after 10 consecutive quarters of contraction,” S&P said. “A stronger-than-expected export performance and an expected bottoming out of private consumption, amid a modest decline in unemployment should support Portugal's fiscal performance in 2014,” the report added.

The Portuguese economy grew on a quarterly basis for the second quarter in a row in the period July-September as GDP advanced 0.2 percent after a surprisingly strong gain of 1.1 percent in the second quarter. The Bank of Portugal in December raised its forecast for GDP growth this year to 0.8 percent from 0.3 percent previously. GDP growth is seen accelerating to 1.3 percent in 2015.

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