The high indebtedness of public administrations and the increase in contingent liabilities, in the context of the crisis caused by the pandemic, constitute the weakness of the Portuguese economy, according to the Financial Stability Report of the Bank of Portugal (BdP), for June and 2011. Released on Monday. exhibition.
The COVID-19 pandemic has caused an economic crisis with repercussions on the financial situation. The bank concluded that the support measures, which were adopted quickly and in coordination, prevented the transmission of the crisis to the financial sector,” adding that “the crisis has disrupted the process of adjusting the Portuguese economy.”
According to the report, the scale and persistence of the crisis, along with the mitigation over time and the redistribution of the pandemic’s costs between the public and private sectors, has led to an increase in debt, particularly in public administrations and sectors. most affected by the crisis.
Thus, the report identifies the main weaknesses and risks to financial stability, which, in addition to the indebtedness of public administrations, refer to “correction risks in international financial markets, which can be amplified by high financial leverage, exposure to assets, low credit quality and low liquidity in the sector’s portfolio. Non-banking finance in the eurozone.
In addition, the “withdrawal of support measures, in case of high indebtedness and activity that remains stagnant in some sectors”, which “promotes the materialization of credit risk”, and “price correction in the residential real estate market in Portugal” also constitute weaknesses, which could to happen , Among other things, the possible decline in demand for real estate by non-residents, which arises in connection with the deterioration of international financing conditions”, and the fact that in the commercial real estate market, “there may be an additional decline in prices after that which occurred in 2020 for some sectors (retail and hotels)” .
Finally, the BDB also warns of “the potential for lower profitability in the banking sector and a strengthening of the link to the public sector, by enhancing exposure to public debt and the granting of publicly secured credit”.
“The listed vulnerabilities and risks were assessed in an integrated manner, showing interdependence between economic sectors, which should be taken into account when formulating policies that promote financial stability,” the banking entity said.
“all care”
At a press conference, the Governor of the Bank of Portugal (Banco de Portugal) said that the current dire situation requires monitoring of the real estate sector.
“The current situation requires all the care that is usually in times of crisis for this sector [o imobiliário] “It should be given to her,” said Mario Centeno, “because in fact she has a massive overlap in the financial system.”
The report notes that “the importance of this market recommends monitoring indicators of possible overvaluation of prices,” which continued to increase in the residential sector, despite the slowdown in its development, in the context of the pandemic.
“The situation in Portugal is characterized by a slowdown in price development,” explained Mario Centeno, with sectors in which this slowdown was more pronounced, such as the commercial sector.
“There are some aspects of demand that are still very active, particularly demand from non-nationals and non-residents, because the sector dynamics in recent months have not been as sustainable in bank credit as they have been in the past,” the governor of BdP Bank explained.
The BDB stressed, however, that a possible correction in house prices would not be very significant, because, it has argued, there has been a decrease in the household debt ratio in recent years, as well as an improvement in the household risk profile. .
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