LISBON, Portugal – Portugal raised 1 billion euros ($1.34 billion) in an auction of short-term debt Wednesday amid signs the country’s deep recession has bottomed out, though investors remain wary of the political and economic risks of planned new austerity measures.
The government debt agency said it sold 700 million euros in 12-month Treasury bills at a cost of 1.619 per cent, which was down from 1.72 per cent at an equivalent auction last month. It also raised 300 million in 3-month bills at 0.766 per cent, but that was slightly higher than 0.743 per cent paid in April.
Portugal received a 78 billion-euro bailout in 2011 after the global financial crisis and a decade of low growth pushed it toward bankruptcy. The rescue deepened the debt crisis affecting the 17 countries that share the euro currency, though recent indicators suggest the outlook is improving.
The Portuguese economy grew 1.1 per cent in the second quarter from the previous three months. Before that, it had dropped for 10 consecutive quarters as spending cuts and tax increases enacted in return for the bailout took a toll on economic activity. At the same time, the jobless rate dropped to 16.4 per cent from a record 17.7 per cent in the first quarter.
Rui Barbara, an asset manager at Lisbon-based financial group Banco Carregosa, said the auction result was in line with secondary market rates and investor expectations as “everything is pointing to a stabilization” in the economy.
Risks remain for Portugal’s recovery, however, and the government expects GDP to contract by 2.3 per cent this year before growing 0.6 per cent in 2014.
The country is still far from generating the kind of wealth needed to pay off its debts. The debt agency says it has already covered part of the 14 billion euros it has to repay in 2014, but in the following two years around 32 billion euros of repayments fall due.
The centre-right coalition government almost collapsed last month as the two parties fell out over the scale of new austerity measures. Further political and social unrest is expected in coming months as the government prepares to cut another 4.7 billion euros in expenditure.