Portugal Business Forecast Report Q4 2012

Executive Summary
Core View
Major Forecast Changes
Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Fiscal Austerity Taking Its Toll On Politics
Cracks are beginning to show in Portugal's centre-right coalition government as the government imposes further fiscal austerity
measures to meet the Troika's targets While we do not expect that governmental collapse is imminent, it is important to note that public
antipathy for the measures is growing Moreover, we reiterate our caution that a comfortable majority in parliament does not guarantee
political stability, in particular as the junior coalition members grow increasingly uncomfortable with the austerity drive
TABLE: POLITICAL OVERVIEW

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Three Full Years Of Recession On The Cards
We forecast the Portuguese economy to contract by 3 4% in 2012 and by 1 7% in 2013 in real GDP terms The country's aggressive
fiscal consolidation drive as part of its EUR78bn IMF/EU bailout package will keep domestic demand under significant pressure in the
coming years The only positive contributor to economic growth will emanate from the net exports component of GDP by expenditure
We also highlight balanced risks to our economic growth forecasts in Portugal
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Troika To Ease Fiscal Deficit Targets
We maintain our forecast that the Portuguese government will miss the Troika's fiscal deficit targets in 2012 and 2013; however, we also
expect that the international lenders will ease the official bailout targets, potentially following the country's fifth IMF review We forecast
the fiscal deficit to come in at 5 3% of GDP in 2012 and 4 5% in 2013, above the Troika's targets of 4 5% and 3 0% respectively
TABLE: FISCAL POLICY
Regional Monetary Policy
Another ECB 'Game Changer' Fails To Deliver
As expected, the ECB announced a new framework for purchasing government bonds at the September 6 monetary policy meeting but
fell short of achieving a lasting resolution for the crisis Although there is scope for markets to rally in the near term as has been the case
in the past when the ECB has met (though not surpassed) expectations, this will fizzle out as investors realise that the 'Draghi put is still
somewhat elusive
Regional Exchange Rate Forecast
US$/EUR – ECB Delivers Temporary Reprieve For Euro
Under pressure from escalating capital flight and a surge in short speculative positions in recent months, the euro dropped to a 2012 low
of US$1 2061/EUR on July 24 – its weakest reading since 2010 ECB President Mario Draghi subsequently ratcheted up the rhetoric by
hinting at a shift in monetary policy towards government bond purchases, which has buoyed the euro over the last month
Regional Banking
Banking Sector: Hitting Turbulence
The eurozone banking system is facing tremendous stress at the disaggregated level, despite appearing more robust from a top-down
perspective The growing disparity between core and periphery banking sectors will force the ECB to expand its balance sheet further
and continue to intervene heavily in order to stabilise the financial system Assuming the eurozone is stabilised, banks will see slower
growth, tighter regulation and a full-blown banking union over the longer term

Chapter 3: 10-Year Forecast
The Portuguese Economy To 2021
Crisis An Opportunity To Improve Long-Term Growth
The short-term outlook for Portugal will be shaped heavily by the measures its government must undertake to corral the fiscal deficit and
bring national debt levels under control However, beyond the immediate term, Portugal will have to grapple with improving its growth
prospects if it is to escape from the debt trap We are forecasting an economy more reliant on external demand and investment and less
on private consumption over the coming decade, but the future will depend in large part on the government's reform programme bearing
fruit
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings

Chapter 5: Key Sectors
Telecommunications
TABLE: INTERNET – HISTORICAL DATA & FORECASTS
TABLE: FIXED LINE – HISTORICAL DATA & FORECASTS
TABLE: MOBILE – HISTORICAL DATA & FORECASTS
TABLE: MOBILE ARPU – HISTORICAL DATA & FORECASTS (EUR)
Other Key Sectors
TABLE: PHARMACEUTICALS SECTOR KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
A Pivotal Autumn Approaches
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 33