The troikas recent endorsement of Portugals 78 billion bailout programme has instilled confidence in the borrowers risk outlook.
Portugal is still ranked 66 out of 186 countries in ECRs global rankings and at the bottom of the third of ECRs five-tiered groups but its score has increased by 0.2 to 50.0 since Q2 2012, contrasting with Spain which is still falling.
Scores for the employment/unemployment, government finances and bank-stability sub-factors remain low, but have all increased, along with several political indicators for the regulatory and policy environment, information access/transparency and institutional risk.
And all of Portugals structural risk indicators, except for demographics, have improved.
The amelioration in bank stability is reflected in the troika report, which states: The recapitalization of the banking sector, and the strengthening of banking supervision and resolution frameworks are well advanced."
Liquidity in the banking system continues to benefit from exceptional support from the eurosystem. Deleveraging in the banking system has proceeded on pace, although access to credit at reasonable conditions remains difficult for parts of the economy.
According to Christian Richter, Principal Lecturer at the University of East London, and one of ECRs contributors, The economy will shrink further this year and next. However, this is largely caused by reduced government spending. And, in contrast to Spain, there is no pessimistic mood in the country. The restaurants and hotels are still full. Plus structural changes are being implemented, and that is a positive sign.
Still, it is likely to be a long climb back for a country that has had its reputation severely damaged by debt problems. As previously noted (Is Portugal about to lose its tier-three status?), the borrower has fallen 22 places since seeking a bailout last year.
Moreover, the difficult economic climate means Portugal has been given more time to correct its fiscal problems, with the authorities aiming for a 5% of GDP general government deficit this year, rather than 4.5%, and with revised targets of 4.5% of GDP for 2013 (previously 3%) and 2.5% in 2014, instead of 2.3%.