Even as the nationwide celebrations across Portugal which began this weekend after the country’s football team won the Euro cup would take some more time to settle down, analysts have said that it was also time for the nation to turn its attention back to its economy.

And the smiles might fade when it does so.

Portugal is “struggling with a systemic banking crisis, the lack of a convincing medium-term fiscal plan and excessive public and private sector leverage,” said a note that was circulated by Barclays note on Monday.

From an expected 0.7 percent in 2016 to just 0.3 percent in 2017, Barclays expects Portuguese growth to slide post-Brexit. Portuguese GDP (gross domestic product) grew by 1.5 percent in 2015 according to the European Commission.

An amount that includes roughly 5 billion euros for state-owned Caixa Geral, the country’s second largest bank, the total capital needs for Portuguese banks to be at 7.5 billion euros ($8.3 billion), predicts Barclays.

Additionally, Portugal’s deficit will fall only by a small margin, to 4.1 percent of GDP from 4.4 percent in 2015, according to data forecast by Barclays, among other financial data which are equally downbeat. Remaining above 130 percent throughout the next decade, the country’s public debt is expected to increase from 130 percent of GDP in 2015 to roughly 132 percent in 2016 according to predictions by Barclays. With an annual borrowing averaging at 23.4 billion euros for 2017 to 2020, Barclays also predicts that Portugal will require 8.9 billion euros of funding for the rest of 2016.

The government’s inability so far to implement a realistic medium-term fiscal plan compatible with solvency is most pressing, says the Barclays note, published by a team of analysts led by Antonio Garcia Pascual.

If the Portuguese government could maintain fiscal balance slightly above 1 percent of GDP over the medium term, it would be sufficient for stable debt dynamics believes the bank.

But the note advises that “even moderate shocks to the medium-term growth or fiscal parameters would place the debt-to-GDP ratio on an ever-increasing path.”

The assumptions that the DBRS credit ratings agency does not downgrade Portugal and the European Central Bank continuing its program of quantitative easing forms the basis of the predictions made by it, says Barclays in the note.

Suggesting that an equivalent crisis in Italy or Spain could negatively impact the country, Portugal’s potential for crisis was not entirely reliant on its own economic management, recognized the Barclays note.

Though its economy has been rocky, Portugal emerged from a two and a half year recession in August 2014.

“I think that the system is stabilizing … we are very focused on the growth of our economy and the reforms we are implementing have to do with growth,” said Portuguese Economy Minister Manuel Caldeira Cabral while speaking to CNBC last month.

(Adapted from CNBC)

Categories: Economy & Finance