Overview: A guide to investing in the PIIGS nations (Part 4 of 15)
The financial crisis in 2008 severely affected the Portuguese economy. The crisis caused a wide range of domestic problems including public deficit levels and excessive economic debt levels. Public debt in Portugal is expected to have peaked at 129% of gross domestic product (or GDP) in 2013.
Peaks and troughs in the Portuguese economy are reflected in the Global X FTSE Portugal 20 ETF (PGAL)—launched in late 2013. The fund has outperformed the Vanguard FTSE Europe ETF (VGK) for most of the year until July, 2014.
Emerging from the recession
The Portuguese economy finally managed to emerge from the recession during 2Q13. It’s now showing signs of revival. In 2013, the government budget deficit was lower-than-expected because tax revenues were larger-than-planned. Rising consumer confidence and demand, booming exports, and declining unemployment are all playing a key role in getting the economy back on track. Portugal was the second Eurozone country, after Ireland, to successfully exit its bailout program in May.
Portugal has been able to manage its external trade balance. After having a deficit of 10% of GDP in 2010, Portugal’s current account recorded a surplus of 0.5% in 2013. Its economy grew at 0.6% during 4Q13—up from the 0.3% expansion witnessed during 3Q13.
The Portuguese economy decreased 0.6% sequentially in 1Q14. It was hit by the recent banking woes. On July 10, Banco Espirito Santo (BKESY)—one of the biggest banks in Portugal popularly known as BES—stalled its shares and bonds trading. Its parent company, Espirito Santo International, allegedly defaulted on a debt payment. Espirito Santo was accused of accounting discrepancies. The lender’s largest outside shareholders include France’s Credit Agricole SA (CRARY)—owner of a 14.6% stake—and Brazil’s Banco Bradesco SA (BBD) which has a 3.9% holding.
Learn more about the BES bailout in the next part of this series.
Browse this series on Market Realist:
- Part 1 - Must-know: Investing in the PIIGS nations
- Part 2 - Why the Eurozone recovery still has to gain momentum
- Part 3 - Why are yields in the Eurozone at an all-time low?
- Budget, Tax & Economy
- Politics & Government