LISBON, Feb 6 (Reuters) - Portugal’s high debt load, limited growth and weak banks saddled with bad loans make the country particularly vulnerable to an international environment where protectionism is on the rise, the Organisation for Economic Co-operation and Development warned on Monday.
“Portugal is in a moment of much vulnerability in the general external context,” Angel Gurria, head of the OECD, said as he presented an OECD survey on Portugal.
Fitch Ratings said much the same on Friday, when it kept Portugal’s credit rating one notch below investment grade. Despite moderating domestic risks, Fitch warned, Portugal remains susceptible to rising protectionist threats, weaker euro zone growth and European politics.
Expectations of growth-boosting policies in the United States following the election of Donald Trump have hurt European bonds in the past few weeks. That particularly hit Portugal, where bond yields are the highest in the euro zone after Greece, and well above the likes of Italy or Spain.
On Monday, Portugal’s benchmark 10-year bond yields hit their highest levels in a year and the premium over German bunds was at three-year highs.
The OECD survey said that although the economy in Portugal is improving, investment remains as much as 30 percent lower than it was in 2005 and significantly weaker than in other euro area countries.
“Structural bottlenecks continue to hold back growth and exacerbate vulnerabilities. Investment is expected to remain weak against the background of contracting credit,” the survey said, adding that the government faced the difficult task of balancing further budget consolidation with pro-growth measures.
It also predicted growth this year of 1.2 percent, in line with last year, and 1.3 percent in 2018, compared with 2015’s 1.6 percent. The government expects the economy to grow 1.5 percent this year and accelerate further in 2018.
The OECD called for renewed momentum in structural reforms to make Portuguese exports more competitive. It also said the country needs to encourage write-offs and restructuring by banks to cut down their non-performing loans. (Reporting By Andrei Khalip and Sergio Goncalves, editing by Axel Bugge)