Portugal: Persenti Political Fragmentation to Test Growth and Fiscal Prospects

Scope Sovereign Rating Level and Rating Outlook in the Parentheses. Source: IMF World Economic Outlook, Scope Rathings. The Fiscal Discipline Demonstrated in the Recent Years Enabled Successive Governments to Acumulate Budgetary Headroom, Creating Some Flexiobility to Gradual IRAMANTHTHTH-ENHANTHTH The Previos Ad-LEVERNMENT DOOKDIATIVES AIMED ATCRAASING SALARIES for PUBLIC Sector Employees and Other Selected Professional Categories. IT ALSO INTRODUCED A 1.25% PERMANENT INCREASE FOR THE LOWEST PENisions, Raized Social Benefits and Extended Fiscal BeneFits for Young People, and Reeduced The Corporate Income Tax

A New Ad-Pel Minority Government Will Likely Continue to Balance Fiscal Prudence with Pro-Growth Measures to Guarantee Compliance with New Eu Fiscal Rules. To secure Support from the Main Opposition Parties, Ad Will Likely Hame to Consider A Mix of Tax Cuts Cuts for LOWER-INCOME HUSHOLDS, TIGHhhhtter Immmigration Policies Reversal of Corporate Tax Cuts or the Revision of Tax Benefits for Younger Workers, Advocated by the Socialist Party.

While Compromises Are Needed and Will Likely Loosen the Fiscal Stance Somewhat, Scope Still Expects The Government to Continue to Run Primary Budgetary Surpluses in Coming Years

External and domestic political uncertainties pose risks for the Future Gradurally EASING FINANCING CONDITIONS, LOWER INFLATIONAL Pressures, and the Expectioned Acceleration in the Implementation of the National Recovery Plan of Support Real Infport Real Infport. This Year and 1.9% in 2026, The Latter in Line with The Economy’s Medium-Run Growth Potential.

Key Risks Include domestic political stalemate delaying reforms and hindering the deployment of eu funs, and the volatile Global Trade Environment. While the Direct Impact of Higher Tariffs Applied by the Us on Imports Is Limited for Portugal, As Goods Exports to the Us Account for Less than 7% of Total ABOLODRY. Impact of Higher Tariffs and the Related Uncertainties Leading to Slower Economic Growth Among Portugal’s Main Trading Partners.

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ALESSANDRA poli is an Analyst in Sovereign and Public Sector Ratings at Scope Rathings. Alvise Lennkh-YunusManaging Director of Sovereign and Public Sector Ratings at Scope, Contributed to Writing this Commentary.