Portugal’s Prime Minister Pedro Passos Coelho is expected to form a minority government after his centre-right coalition won an election but lost its parliamentary majority, a move shrugged off by markets which see little immediate risk of instability.

But economists said yesterday reforms needed to help the indebted country’s meagre growth after a steep recession in 2011-13 would be more difficult to pass and the austerity-minded government could face political turmoil next year.

High likelihood that new legislature will not reach end of its term

The election “will further constrain the potential for structural economic reforms and increase risks to the fiscal outlook”, said Eurasia Group analyst Federico Santi, adding the “likelihood that the new legislature will not reach the end of its four-year term is quite high”.

President Anibal Cavaco Silva must name the new prime minister after talking to all political leaders with discussions likely to start later this week and take two weeks. Passos Coelho would be the first leader in Europe to be re-elected after imposing hardship on voters under international bailout packages during the sovereign debt crisis.

His government raised taxes and cut public spending, but argued during the campaign that the country was now beginning to see the fruits of those measures with a gradual return to growth after three years of recession. Passos Coelho said he was ready to form a government while suggesting he may have to compromise on policies.