The Portugal exchange traded fund is slowly gaining ground as the country recovers from its financial crisis and moves out of its austerity obligations. However, a recent ruling could put Portugal’s June bailout exit at risk.
The Global X FTSE Portugal 20 ETF (NYSEArca: PGAL), which debuted Nov. 13, has gained 4% since its inception. [As Bailout Exit Looms, New Portugal ETF Strengthens]
The constitutional court has found that the government’s plans to converge state and private sector pensions breeched the constitution because it did not meet workers’ fair expectations to receive a determined level of payment from pensions, reports Peter Wise for the Financial Times.
Consequently, the government will need to find alternative cuts or increase taxes up to €388 million, or $530.5 million, next year, or up 12% of the total fiscal consolidation planned to maintain its June bailout exit strategy.
Charles Schulz, a senior economist with Berenberg, argued that the tax hikes or fiscal cuts would likely “hurt the economy more than the planned cut in public sector pensions.”
Nevertheless, Schulz believes Portugal has a good chance of leaving the bailout program behind in June, pointing to economic growth and economic reforms.
“The economy is growing, political risks are limited and the government is reforming the economy,” Shulz added. “But the errors of the past will continue to weigh on Portugal’s prospects.”
Portugal’s economy is expected to expand 2% in 2014 and over 5% in 2015 after what appears to be a bottom earlier this year, according to Investment U.
The unemployment rate, while still high at 15.6%, has been falling since a high at the start of the year. Consumer spending, consumer confidence and business confidence are rising, with retail sales showing positive growth for the first time since 2011.
Global X FTSE Portugal 20 ETF
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