Portuguese Premier Costa Boosted by Gains in Local Elections

(Bloomberg) -- The minority government of Portuguese Prime Minister Antonio Costa received a boost on Sunday after his Socialist Party gained in national municipal elections.

Two years before the next general election is due, the Socialists took 38 percent of the vote and 157 town halls with 99.8 percent of the country's voting districts reporting, according to the government's election website. Turnout was 55 percent on Sunday, compared with 52.6 percent at the previous local elections in 2013.

“The Socialist Party had its biggest local election victory in history,” Costa said late on Sunday in a speech broadcast by RTP television from the party's headquarters in Lisbon. “There's a strengthening of the change that we started in parliament two years ago and which has demonstrated to the country that it's possible to have better results with new policies.”

Portugal has 308 municipalities, and the Socialists went into the election holding 149 of these plus one in a coalition in Funchal on the island of Madeira. Socialist Mayor Fernando Medina won Sunday's election in Lisbon, the country's biggest city.

Higher tourist arrivals and growing exports have helped drive a rebound in Portugal's economy, strengthening former Lisbon mayor Costa as unemployment fell and the budget deficit narrowed to the lowest point in four decades.

Since taking office at the end of 2015, Costa has governed with the support of the Left Bloc, Communist and Green parties, as he seeks to alleviate some of the austerity measures that were part of a bailout program implemented by the previous government. While Costa has reversed cuts to government sector salaries and reduced working hours for state workers, he has also increased some indirect taxes. 

Pedro Passos Coelho, leader of the opposition Social Democrats, said he would consider whether to run again for his party's leadership following the local election defeat. “We had one of our worst results,” he told supporters in Lisbon.

Recent Challenges

The Socialist Party's strong performance in Sunday's municipal elections comes after a number of recent challenges.

In July, the conservative CDS party called for the defense minister to step down after ammunition was stolen from a military facility. The deaths of more than 60 people in a forest fire in June also led to calls for the resignation of the interior minister.

Support for the Socialist Party stood at 40.3 percent in a nationwide poll published by weekly newspaper Expresso on Sept. 8, leading the opposition Social Democrats by 11.6 percentage points. The Socialists took 32 percent of the vote in the October 2015 general election and are the second biggest party in parliament after the Social Democrats.

With the 2018 budget bill due to be introduced to parliament by Oct. 15, Costa said the government would “work to build a good budget.”

The Bank of Portugal forecasts growth of 2.5 percent this year, up from 1.4 percent in 2016, while the government sees debt falling to 127.7 percent of gross domestic product in 2017 from 130.1 percent last year.

Portugal's 10-year bond yield was at 2.4 percent on Monday, down from 4 percent six months ago. It peaked at 18 percent in 2012 at the height of the euro region's debt crisis.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Jason Koutsoukis, Henrique Almeida