Portugal's deputy PM sees upside growth surprise

LISBON Mon Feb 10, 2014 12:27pm EST

Portugal's Deputy Prime Minister Paulo Portas speaks during a briefing to announce the results of the review by the ''troika'' in Lisbon December 16, 2013. REUTERS/Hugo Correia

Portugal's Deputy Prime Minister Paulo Portas speaks during a briefing to announce the results of the review by the ''troika'' in Lisbon December 16, 2013.

Credit: Reuters/Hugo Correia

LISBON (Reuters) - Portugal's economy may grow more than the government's forecast of 0.8 percent this year as confidence bounces back after the hardship of its international bailout and political turbulence last summer, Deputy Prime Minister Paulo Portas said.

Portas, speaking at the Reuters euro zone summit, said growth indicators had steadily improved since the summer and would see the government last through its full term until 2015 after it nearly collapsed following his threat to resign.

"If the Portuguese economy grows more than 0.8 percent (this year) I will not be surprised," he said.

This year will mark the first year of growth since 2010, when Portugal begun to descend into its debt crisis that dragged it through its worst downturn since the 1970s and forced it to seek a bailout in 2011.

"Since July, confidence figures have been growing and growing. The confidence of families, the confidence of consumers and the confidence of the business community is the best it has been in 40 months," Portas said.

Portugal's export and tourism sector - areas of the economy which have both helped recovery from the debt crisis - posted record years in 2013, he said.

The economy is still expected to have contracted by 1.8 percent through all of 2013. But both the second and third quarters of last year showed growth and Portas said the fourth quarter was probably also positive.

"I think that, as confidence atTracts confidence, Portugal is returning to the GPS of investment," he said.

Fourth quarter GDP figures will be released on Friday.

Improving confidence will be key for the country as it eyes the end of its 78-billion-euro EU/IMF bailout in May this year. The bailout imposed harsh austerity, with sharp tax hikes, pay cuts and reductions in pensions for civil servants.

"I am absolutely convinced that Portugal will be capable of finishing the program," Portas said.

NO DECISION ON PRECAUTIONARY CREDIT

The deputy prime minister who oversees negotiations with the country's creditors said it was too early to decide whether to opt for a precautionary credit line to help its exit from the bailout.

"We have not yet reached the moment for the government to announce its decision on how to exit from the program," he said, pointing to Ireland's example.

Ireland only announced in November that it planned a 'clean' exit from its aid program, which ended in December 2013.

Portas ruled out any further political turbulence in the ruling center-right coalition, in which his rightist CDS-PP is the junior partner.

Without his party's support, the government would lose its majority in parliament. His threat to resign as foreign minister last summer led to his promotion to his current position.

"I said in the congress of my party that it seems to me that this will be the first coalition that finishes its term," he said. "Once it happens, it won't be the last time."

RETURN TO BOND MARKET KEY

Portugal's improving economic outlook has been reflected in sharply falling borrowing costs - its 10-year yields are back around 5 percent, near their lowest levels since the country was bailed out in 2011.

The key to the country's ability to stand unaided again will be to return to financing itself in the bond market. It issued 3.25 billion euros in five-year bonds in January and plans to resume bond auctions in the first half of this year.

Portas said it was important for Portugal to carry out debt issues of different kinds and attract strong demand, "which is clearly an indicator of confidence".

"Managing to issue debt in decent conditions clearly opens the way," he said.

Once Portugal ends what Portas refers to as being a "protectorate" under the European Union and IMF, the country should gradually start to reduce income taxes, he said.

"We have to work so that the start of a reduction in income tax takes place in 2015," he said, adding that a commission will soon be created to reform the country's income tax code.

But Portas said the country should be under no illusions and had learnt the hard lessons of the bailout, which has led to years of hardship for the Portuguese.

"No nation goes through a crisis like this without learning its lesson," he said.

"I am 51 years old and have seen the IMF in Portugal three times. With all due respect, as we are also members of the IMF, I don't want to see it here ever again."

(Editing by Mike Peacock)

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