PORTUGAL FACES SLACK INTERNAL DEMAND.

(From Market - Europe)

Hobbled by high unemployment and the government's inability to fund a spending stimulus package, Portugal is headed for slow growth in private sector spending through at least the first half of 2004

During the first 14 years after joining the European Union, Portugal experienced robust economic growth fueled by rising internal and external demand for its goods and services. Over the past three years, the downturn in EU economic activity has stifled export expansion at a time when internal demand for goods and services was losing its upward momentum

Consumer goods sales growth should return in 2004, but the upward momentum will be limited. Average growth in sales of consumer goods from 2003 through 2006 will be about 2 percent, although the rate should gradually rise toward the end of that period

Most of the increase in consumer goods sales will be linked to rising demand for low-end household goods, which should experience sales growth in the range of 3 to 5 percent in 2004. Sales of high-end durables will show anemic growth of under 2 percent through the first half of the year

Demand for high-end durables is not likely to rebound until there is a sustainable recovery in consumer confidence. The level of confidence dropped off from 2001 through 2003 as unemployment rose from 4.4 percent to 7.2 percent. The unemployment rate should level off during 2004 but the federal deficit is already above the EU maximum and that will make it impossible to prime the pump of private consumption through major tax cuts

Portugal is one of the most price sensitive consumer markets in the EU. With household consumption at low ebb, goods suppliers and retailers have been forced to cut profit margins in order to offer attractive sales prices. Margins are likely to remain painfully slim into the second half of 2004 when increased foreign sales should allow export companies to up prices a ...