Europe must be cautious in withdrawing support for businesses, Portugal's Centeno warns

LISBON, Oct 27 (Reuters) - Bank of Portugal governor Mario Centeno said on Tuesday that the risks associated with winding down measures to support economies hit by the coronavirus pandemic were serious and European authorities must be careful in doing so.

Centeno, also a member of the Governing Council of the European Central Bank, warned that an early withdrawal could have a “destabilising” effect on the region’s recovery.

“With high uncertainty and the recovery still weak, the risks of an early withdrawal of support are serious and require careful assessment,” Centeno said, speaking at a banking conference in Lisbon.

The governor reasoned that extending support too widely would also not be wise. “Extending support measures could lead to an undesirable maintenance of employment and allocation of credit to non-viable companies, which would weigh on future growth,” he said.

Centeno joins the Bank of England and Germany’s Bundesbank, among others, in warning about the risk of rising insolvencies as state support measures are wound down.

Optimism about the burst of activity following lifting of national lockdowns in Europe has waned as rising case tolls have prompted curfews and localised restrictions across the region.

Over half of small and medium-sized companies in Europe fear for their survival in the coming 12 months, with one in 10 expecting to file for bankruptcy in six months, according to a survey conducted in August and released by management consultancy McKinsey last week.

Reporting by Sergio Goncalves and Victoria Waldersee; Editing by Alison Williams