(Bloomberg) -- Portuguese Prime Minister Antonio Costa will face an early election on Jan. 30 after parliament rejected his minority Socialist government's 2022 budget last week.
President Marcelo Rebelo de Sousa announced the date on Thursday in Lisbon. He had already said parliament would be dissolved if lawmakers were to reject the budget.
Costa, who is halfway through a second four-year term, is heading for the vote with a lead in opinion polls over the biggest opposition group, center-right party PSD. If victorious, he is likely to preside over another minority cabinet governing a recovering economy.
Costa's main opponent, PSD leader Rui Rio, looks set to face an internal contest for his party's leadership. The disarray within the center-right group may prove a further advantage for Costa.
Read More on Why Costa's Budget Failed in Parliament
Portugal's economy shrank the most since at least 1960 last year as the pandemic pummeled tourism, which represents about 15% of the country's economy and 9% of employment. It's now bouncing back, helped by European Union recovery funding that began to flow earlier this year.
The southern European nation has the third-highest debt ratio in the euro area behind Greece and Italy, putting policy makers' focus on keeping borrowing costs in check. There hasn't been a big bond market reaction so far to the political developments, and Moody's Investors Service said last week that the budget impasse “does not pose a particularly high risk to deficit targets.”
“We will do whatever it takes to ensure sound public finances,” Prime Minister Costa said on Wednesday.
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