The governor of the Bank of Portugal (BdP) this Monday defended the role of government support and banking, combined with savings, in preventing defaults on family loans and recommended reducing the weight of state spending.
In an analysis of the current state of the economy published by the banking regulator, the governor, Mário Centeno, warns that by the end of this year “about 70,000 households with permanent home loans could have expenses in excess of 50%. their net income”, recalling that “there were already 36 thousand families at the end of 2021”.
“Strengthening savings and deleveraging, as well as public support and the role of the banking sector in preventing defaults, can mitigate these risks”he emphasizes, adding that “with deposits it is essential to continue to create conditions to stimulate saving”.
About a month before the delivery of the state budget for 2024 (OE2024), the former finance minister believes in the publication entitled “Crossroads of Policy” that “Fiscal policy must continue to be guided by the idea that what was unfinanceable five years ago has not changed”.
At a time when the revision of the Brussels fiscal rules is under discussion, but the European Commission’s proposal gives more weight to the development of primary expenditure, Mário Centeno recalls that “the weight of permanent expenditure in the economy remains above 2019 ”, and defends that “should be reduced to ensure sustainability throughout the economic cycle”.
Recalling that the state presents balanced government accounts, he recommends: “at a time of possible changes in the economic cycle, we cannot be caught unprepared, as has so often happened”.
After painting a positive picture of the country’s evolution since 2015, Mário Centeno argues that “the conclusion of the recovery from the pandemic crisis, the cooling of inflation and the need to find the sources of growth in structural factors , making 2023 a crucial year”.
However, he highlights the performance of the economy in the first half of the year – “government accounts are among the most balanced; public and private debt on a downward path; and a stable financial system and an ally of the economy” –. , that “intersection of policies to reduce inflation and respond to the economic slowdown”.
Mário Centeno nevertheless points out that the second half will start with employment and wages at maximum values”, pointing out that “private employment has grown by 9% since 2019 and there are 800,000 more jobs than ten years ago”, as well as if the wage growth of 20% since 2019.
The governor also notes the evolution of qualifications in Portugal, in what he often calls the “silent revolution”, which he says cannot be abandoned.
He also denies “an alleged ‘reduction’ in the number of graduates”, as it is “a statistical anomaly, without socio-economic support”.
‘Let me see. Between 2011 and 2019, the Portuguese population with higher education increased by 71,000 per year. Between the end of 2019 and mid-2022, this number would have risen to 180,000 graduates per year! incompatible with the stream of students graduating each year. In the absence of massive migration flows of incoming graduates in the middle of the pandemic, this evolution is not credible.”argues.
In this sense, he explains that “correcting the discrepancy, the current two million licensees also correspond to an increase of 71 thousand per year since 2019”.
“Nothing has changed. The country is not destined for qualifications that many thought were endemic, nor for emigration”underlined.
The governor states that the risk of too high interest rates is becoming material
The governor of the Bank of Portugal (BdP) defended this Monday that the reduction in inflation to the 2% target of the European Central Bank (ECB) is close and that the risk of ‘doing too much’ in monetary policy has materialized. starts to become. .
In analyzing the current economic situation, Mário Centeno reflects on the economic challenges faced by Portugal and the Eurozone and on the policy path to follow, arguing that the situation calls for policies aimed at the stabilizing function.
“Monetarily, the risk of ‘doing too much’ is becoming material; inflation has fallen faster than it has risen and the economy is adapting to the new financial conditions”writes the governor of the BdP in the analysis he will publish annually.
‘Inflation should move towards 2%’given that “In the absence of new shocks and with the materialization of the transmission of monetary policy to the economy, the medium-term objective is within our reach in the near horizon”defended.
Mário Centeno’s analysis anticipates next week’s meeting of the Governing Council of the ECB, which, according to the intervention of those responsible, will be based on data.
“The (external) economic environment is showing signs of slowing down and even has recessive dimensions. Eurozone economic indicators released in July are not encouraging, but the recession avoidance scenario remains central to our assessments”adds the Portuguese governor.
In support of this argument, he points to the trends of key eurozone indicators in July: lending weakened, private sector contraction increased, consumer confidence improved, investor confidence deteriorated, weakened and activity almost stagnating in the services sector, the recession in the manufacturing industry is deepening, easing pressure on prices and curbing employment to a minimum.
For Mário Centeno, afterwards “Once convergence towards price stability is assured, monetary policy should set out on a predictable path of interest rate cuts, but a long way from times of zero or even negative interest rates”.
He also believes that budgetary “balance must be maintained to reduce debt in a context of low inflation and higher interest rates”.
He also recalls the European response to the pandemic, stating that “this sublime moment of European construction must be followed by the response at a new crossroads”.
“Economic policies must continue to fight the causes of inflation, as it is a symptom, minimizing the risks of destabilization for citizens and laying the foundations for a new economic cycle. In this difficult time for geopolitics and the economy, stability and policy predictability must be our greatest asset”he said.
Source: DN
