S&P downgrade and comments on Portugal

As part of its 2 notch downgrade for Portugal to A-, S&P is saying under their revised base case economic growth scenario, “we expect the Portuguese gov’t could struggle to stabilize its relatively high debt ratio over the outlook horizon until 2013. Portugal’s public finances in our view remain structurally weak, notwithstanding the gov’ts substantial public sector reforms of recent years.” “We believe past dependence on now more scarce external financing as a source of economic growth, and weak external competitiveness add to the likely adverse growth dynamics in Portugal. As a result, to reach its current targets we expect that the Portuguese gov’t would need to implement fiscal consolidation over and above its current plans.” “The negative outlook reflects our assessment of the risk of a further downgrade should fiscal consolidation fall short of expectations or should concerns over gov’t liquidity mount.”

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