Socialist Prime Minister Antonio Costa won Portugal’s parliamentary election on Sunday and may govern for a third term, two exit polls showed.
The Socialists garnered between 37% and 42% of the vote, ahead of the opposition center-right PSD party’s 30% to 35%, according to a poll by the Catholic University for broadcaster RTP. Costa’s party may get between 102 and 116 seats in parliament, the poll showed. The Socialists currently have 108 of a total of 230 seats, and an absolute majority requires at least 116.
An exit poll by television channel SIC also showed that Costa won.
The next administration will take on an economy trying to bounce back after the pandemic, with the help of European Union recovery funds that began to flow last year. The government said in April that the EU pandemic recovery plan will have an economic impact of 22 billion euros ($25 billion) in Portugal through 2025, and estimated that gross domestic product in 2025 will be 3.5% higher than it would be without that plan.
Portugal’s 200 billion-euro economy is recovering after shrinking 8.4% in 2020 — the most since at least 1960 — as the pandemic hurt tourism and other key businesses. For Portugal, which has the third-highest debt ratio in the euro area behind Greece and Italy, tourism represents about 15% of the economy and 9% of employment.
In January 2021, Portugal had one of the world’s worst outbreaks, forcing the government to impose strict confinement measures. The country now has one of the highest COVID-19 vaccination rates in the world, and despite record cases in recent weeks, there hasn’t been a surge in occupancy at intensive care units. The government eased restrictions earlier this month.
The Bank of Portugal forecasts growth will accelerate to 5.8% in 2022, before slowing to 3.1% in 2023. Inflation is predicted at 1.8% in 2022, subdued when compared with other European economies. Meanwhile, the government forecast the debt ratio will drop to about 122% of GDP at the end of 2022 from about 127% in 2021, and aimed to narrow the budget deficit to 3.2% of GDP in 2022.
Costa, 60, who’s been prime minister since 2015, has said he’s open to negotiate with other parties in parliament except far-right group Chega.
The Communists or the Left Bloc have in the past helped the Costa minority governments’ budgets pass in parliament by voting for the plans or abstaining. In October, they both joined parties on the right to vote against the 2022 budget, saying the government hadn’t met their demands on topics including a higher minimum wage. That cut Costa’s second term short and led to the snap election.
The Socialists pledge budget discipline and say they offer stability and further improvements in household incomes. They plan to raise the minimum wage again and increase investment in health care.
Rui Rio, 64, the leader of the center-right PSD, hasn’t ruled out cooperating with a new Costa government. Rio, an economist and former mayor of Oporto in northern Portugal, has said the economy should grow faster and points out that the country has been overtaken in terms of GDP per capita by eastern European nations that joined the EU later, including the Czech Republic and Slovenia.
In 2019, the government was sworn in about three weeks after the election. Several minority governments in Portugal have been short-lived. From 2015 to 2019, Costa led only the second minority government in Portugal to serve a full term since the four-decade dictatorship ended in 1974.
There wasn’t a big bond market reaction in October to the political developments that led to the snap election being called. Given the country’s debt pile, governments have to keep borrowing costs in check. Portugal’s 10-year bond yield was at 0.62% on Friday, up from 0.19% six months ago but still lower than the rate for Italy or Spain. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.
