Portuguese Prime Minister Antonio Costa will face an early election on January 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 said Parliament would be dissolved if legislators rejected the budget.
Mr 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, the centre-right Social Democratic Party, or PSD.
If victorious, he is likely to preside over another minority cabinet governing a recovering economy.
Mr Costa’s main opponent, PSD leader Rui Rio, looks set to face an internal contest for his party’s leadership. The disarray within the centre-right group may prove a further advantage for the incumbent.
Portugal’s economy shrank the most since at least 1960 last year as the pandemic hit tourism, which represents about 15 per cent of the country’s economy and 9 per cent of employment.
It is now bouncing back, helped by EU recovery funds that began to flow 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 has not been a big bond market reaction so far to the 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,” Mr Costa said on Wednesday.