Double whammy day
The Portuguese government received a double whammy yesterday when a general strike brought large parts of the country to a standstill and a credit rating agency reduced the country’s credit to junk status.
The general strike, organised by the trade unions brought large parts of the economy to a halt, including airports, ports and railways. Although no figures for the numbers protesting was given, the main CGTP union estimated it to be more than the 3 million who reportedly took part in a similar protest last year.
The centre right Social Democratic Party (PSD) government of Prime Minister Pedro Passos Coelho won the 5th June 2011 general election on a tough austerity programme.
So far they have instigated spending cuts across the board, halved 2011 bonuses, cancelled holiday and yearend bonuses for civil servants, started a privatisation programme, started reforming labour laws and extended the working day by half an hour.
Despite all of these efforts the Fitch ratings agency decided yesterday that the government might still miss its targets for reducing the budget deficit. On that basis Fitch cut Portugal’s credit rating from BBB- to BB+ which is considered to be junk status.
The government currently has a €78 billion EU/IMF bailout for which part of the condition is that they reduce the budget deficit from 10% of GDP last year to 5.9% this year and 4.5% next year. The economy is expected to contract by 1.6% this year and 2.9% next year which, no doubt, will result in more strikes.