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					                                                                                                                                         EU27 country reports

By Jesus Martins, Caixa Economica Montepio Geral

Macroeconomic overview                                                                                                         EU27,        Portugal, Portugal,
                                                                                                                               2008         2008       2007
The strong decline in investment and exports associated with the international
                                                                                           GDP growth                                  0.8%       0.0%      1.9%
financial and economic crisis were among the factors behind the stagnation of
the Portuguese economy: real GDP growth rate in 2008 was flat.                             Unemployment rate                           7.0%      7.7%         8.1%
The above-mentioned factors also explained relatively high unemployment                    Inflation                                   3.7%      2.7%         2.4%
levels, at 7.7%, although this represented a slight decrease from 8.1% in 2007.            % owner occupied                        66.8%        76.0%        76.0%
The inflation rate has declined dramatically, reaching 0.8% at the end of 2008. This       Residential Mortgage loans
                                                                                                                                   49.8%        63.3%        62.1%
was due to the sharp contraction in economic activity, the reduction in the price of       as % GDP
commodities and increased unemployment. Average inflation in 2008 was 2.7%.                Residential Mortgage loans
                                                                                                                                       12.24      9.91         9.52
Despite the ECB`s repeated cuts in its central interest rate, mortgage interest            per capita, € 000s
rates in Portugal showed marked declines only in the first quarter of 2009, due            Total value of residential loans,
                                                                                                                                6,087,928      105,210     101,094
to the time lag in the transmission mechanism.                                             € million
                                                                                           Annual % house price growth                 0.3%     -6.3%        -1.2%
                                                                                           Typical mortgage rate
Housing and mortgage markets                                                               (Euro area)
                                                                                                                                       5.5%      5.9%         5.7%

At the end of 2008, the total stock of mortgage lending was 105,210 million                Outstanding Covered Bonds as
                                                                                                                                   21.2%        11.5%         7.8%
Euros, which represented an annual increase of 4.1%. This was a slowdown in                % of residential lending
comparison with the 10% increase recorded in 2007, driven by factors related
to the international crisis, which severely impacted families and businesses and
had a negative effect on unemployment.                                                    Source: EMF, EUROSTAT, ECB, Bank of Portugal
This negative scenario is also reflected in other housing and mortgage market
indicators which recorded a contraction in activity over the previous year. In
2008, gross residential lending decreased by 31.1% on 2007 and the residential
house price index fell by 6% (according to the Bank Evaluation on Housing
published by the Statistical Institute of Portugal, INE).
The ratio of non-performing loans to total mortgage credit increased over the
previous year. The ratio of all non-performing loans (residential and commercial)
to total credit also went up from 1.86% in the first quarter of 2008 to 2.17% in
the last quarter of the year. At the end of 2008, the ratio of non-performing loans
to mortgage credit was 1.5%.
Three important legislative measures were taken during 2008. The Aviso n.º 10/2008,
released by the Bank of Portugal, contained detailed rules which financial institutions
are obliged to comply with when promoting and selling mortgage products.
Moreover, the Decreto Lei n.º 88/2008 requires financial institutions to use the
360 days market convention in order to calculate both the interest and the rate
to apply for mortgage credit.
Finally, the Decreto Lei n.º 171/2008 seeks to eliminate barriers to the renegotiation
and transfer of mortgage credit. It contains a rule which bans the collection of any
fees associated with the renegotiation of mortgage credit.
In 2008, deposits continued to constitute the main funding tool for mortgage credit.
Outstanding mortgage bonds amounted to 15,270 million Euros in 2008, which
represented a growth rate of 94.5% on 2007. Total mortgage-backed securities
outstanding in 2008 amounted to 14,411 million Euros, which was an increase
of 5.1% on 2007.
The savings rate of individuals as a share of disposable income was 6.5% (6.2%
in 2007).

                                                                                              Typical mortgage rate Euro area refers to the APRC (Source: ECB)
                                                                                              EU owner occupation rate average derived from EMF calculations based
                                                                                              on latest available data. Portugal= 2007
                                                                                                                                                   2008 EMF HYPOSTAT |   41

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