Portugal Election Result Delivers Stability At An Important Time

The Socialist Party (PS) overperformed relative to expectations in the January 30, 2022 parliamentary election by consolidating enough votes from left-wing parties to secure an absolute majority. The PS's main rival, the centre-right Social Democratic Party (PSD), also improved on its 2019 result. The far-right Chega party made significant gains to become the third largest party, with over 7% of the vote. However, the two main centrist political parties won a combined 71%, an improvement from 2019 when the PS and PSD together collected 64%. The strength of the political centre underpins DBRS Morningstar's view that Portugal will continue its pragmatic approach to macroeconomic policymaking. Likewise, a majority government allows for legislative stability at an important time, when Portugal (BBB high, Stable) manages its EU funds designed to boost economic prospects.

Key Highlights include:
-- Even as the Socialist Party wins an absolute majority, the election strengthened the centre of the political spectrum.
-- A majority government allows for policy making stability at an important time, when Portugal will benefit from the transfer of large EU funds.
-- Effective execution of investments and reforms linked to EU funding could boost growth prospects.

“This unexpected majority victory in the Portuguese election could usher in a period of political stability at an important moment,” says Jason Graffam Vice President in the Global Sovereign Ratings Group.

“The majority outcome could reduce legislative obstacles, as the country aims to boost growth prospects with effective execution of investments and reforms linked to EU funding.”