18th April 2012
One of the themes of this blog has been the way that politicians indulge in hyperbole and bombast to cover up and in many cases to dent economic reality. Today we see both an example of this and an attempt to shift ground from Portugal’s Prime Minister Mr. Coelho in an opinion piece in the Financial Times. We get a flavour of it from the title: Portugal will prove the doubters wrong
I note that Mr. Coelho is attempting to smear those who doubt his policies by calling them doubters of Portugal but I guess for a politician that is a fairly standard tactic. He tells us that he believes that Portugal will succeed but there is a change from his previous stance repeated many times that Portugal will not need another bailout:
'This is why we accept that we may need to rely on the commitment of our international partners to extend further support if circumstances beyond our control obstruct our return to market financing.'
Quite different is it not from the previous denials? And according to Mr. Coelho the reason for this is that "…in an age of uncertainty there are no guarantees'
However a section that describes the reforms being undertaken by Portugal has an extra word. Can you spot it? 'These actions will help rebalance Portugal’s budget deficit'.
Yes using the word help invokes images of drugs companies who know that their products have limited or no effects and slip in the word help to their advertising as a get-out clause!
There is also a large elephant in the room when we look at this section of the speech: 'Of course, we are well aware of the argument that austerity programmes and actions to balance the current account can be detrimental to growth in the long term.'
Prime Minister Coelho is ignoring the effects of his policies in 2012. Let me help him out by repeating this from the Bank of Portugal’s Spring Bulletin.
'Within this framework, a significant decline in economic activity is projected for 2012 (3.4 per cent), followed by a stabilization in 2013.'
In a nutshell we have the problem explained here which is that Portugal will see a severe recession in 2012 which I believe could easily tip over into a depression. As I reported on April 3rd the latest figure for industrial production is 7.8% lower than a year ago and the latest retail sales numbers are 8.9% lower than a year before. Those are depression and not recession type numbers. If we take 2005 as our benchmark of 100 Portuguese industrial production is at 82 and her level of retail sales is at 75.
As to the “stabilisation” in 2013 official forecasts always say that. Official forecasts for Greece have been littered with such promises, what has been missing is them actually happening! What happens instead is “stabilisation” in 2013 becomes 2014,15… and so in in what so far has been a never-ending progression.
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