(Bloomberg) -- Prime Minister Antonio Costa clenched a second term in Sunday’s general election, showcasing Portugal’s political stability and expanding parliamentary support as he faces stiffer economic headwinds.
Costa’s Socialists took about 37% of the vote and boosted the number of seats in parliament to at least 106 from currently 86 in the 230-seat chamber, based on 99% of votes counted. The opposition PSD party garnered 28%. Four more seats will be allocated to overseas ballots.
It was a rare victory for Europe’s left, which has been clobbered by the rise of Greens or the far right in elections elsewhere. The absence of populism and regionalism that battered traditional parties in much of Europe has made Portugal somewhat of an island of political stability. Whereas neighboring Spain is headed for its fourth election in four years, Costa has governed without a parliamentary majority for just as long.
Addressing cheering campaign supporters after midnight, Costa said he was willing to renew his informal alliance with the Communists and the Left Bloc so as to push ahead with more social welfare while adhering to fiscal discipline. With only one of those allies, he would already have an absolute majority.
“The existence of legislative stability on the horizon is essential for the international credibility of the country, to give confidence to those who invest, create new companies, new jobs,” Costa said.
“I think financial markets and investors will see this result as a very good one. The Socialists will depend less on other parties,” said Ricardo Cabral, assistant professor of economics at Portugal’s University of Madeira. “The political stability that the country had in recent years will continue.”
While Costa boosted his approval ratings by reversing part of the austerity measures agreed under the 2011 bailout, he stuck to fiscal discipline and all but eliminated deficit spending, albeit with the help of easy money from the European Central Bank.
Portugal’s economy has grown for five consecutive years and unemployment has halved since the country sought an international bailout in 2011 during the euro-area debt crisis.
But the recovery fueled in large part by a real estate and tourism boom also generated unequal benefits, with many of the jobs created paying minimum wage. Portugal had the fourth-lowest average wage of OECD member countries in 2018.
Costa’s second-term challenge will be to deliver on campaign promises to boost disposable income by cutting taxes and lifting the minimum wage. All the while, the country’s public debt remains at a staggering 122% of GDP and economic growth is half what it was two years ago. Down-sizing the public sector and making the labor market less rigid are among the top fixes lenders demand.
“Portugal needs a set of structural reforms and if they aren’t done the country’s development will be strangled,” Rui Rio, leader of center-right opposition party PSD, said on Sunday night.
“The real challenge will be to reduce debt to ensure that when interest rates rise and the economic cycle changes, the government won’t need to increase taxes, which are already at a historical high,” said Eduardo Silva, deputy director at X-Trade Brokers in Lisbon.
On Sunday night Costa remained undeterred, setting out ambitious targets. A new mandate and continuity would help cut public debt to under 100% of GDP by the end of his four-year term, he said.
“Four years of government stability is a Portuguese advantage that we can’t waste. Political stability is an essential value.”
--With assistance from Katerina Petroff.
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