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Mario Centeno: Portugal, a Success Story

1 April 2018

Important challenges remain, but a sustainable future is already being built.

The Portuguese economy is now growing above the EU and euro area average, supported by strong growth in investment and exports. Unemployment is at pre-crisis levels, and the employment rate is growing steadily. Budget deficits are at their lowest level in the last four decades. The current account has been in surplus for the last six years.

Nevertheless, a few years ago, Portugal was faced with a profound recession, which followed a decade of weak growth and the accumulation of severe internal and external imbalances. Employment was falling, and unemployment and emigration were the main social consequences. Restrictions on funding led to a sharp recession.

There were signs of a resumption in 2014 and 2015, but they revealed themselves to be weak and ephemeral. Portugal would turn the page in the second half of 2016, with growth reaching 1.6% at the end of the year and accelerating to 2.7% in 2017, with a 9% increase in investment and 7.9% in exports. Employment grew by 3.5% by the end of 2017, and unemployment fell to 8%. All this with wage growth and a reduction in the informal employment rate. After six consecutive years of declines, the labour force has been increasing again since the end of 2016.

At the same time, the international reputation of the Portuguese economy has improved with its exit from the EU Excessive Deficit Procedure in June 2017. The budget deficit for 2017 fell to 0.9% of GDP, a new low in Portugal’s democratic history. The primary surplus was 3%, the 2nd highest in the EU28. The public debt stock fell by 4.3 pp (the largest decline in 20 years) and private sector deleveraging led private debt to decrease by 44 pp in 2017, compared to its peak in 2012. The renewed economic vigour and fiscal consolidation surprised analysts, whose projections have often become out of phase with reality.

Growth in investment, upgraded skills and social stability have contributed to the gains in confidence and competitiveness observed over the past two years. Portuguese exports represent more than 43% of GDP, gaining three percentage points of market share in 2017.

Efforts to stabilise the Portuguese banking sector were crucial to increasing credit flows and improving capital allocation efficiency. Portugal also found resilience in its commitment to rebalancing public finances through structural reforms, reflecting remarkable political stability and consensus for rigorous management of public debt and expenditure, in balance with the need to promote economic growth.

Portugal has turned a new leaf. After a decade of poor performance and a serious crisis, the Portuguese economy emerged with renewed vigour. Important challenges remain, notably in managing the legacies of the recent crisis, but Portugal’s capacity to deal with them is notably greater than at any time in recent decades. The Portuguese economy’s structural indicators are now solid, including in economic activity, with 15 consecutive quarters of growth in public accounts, with an improvement in the structural balance of 1.4 percentage points in the last two years, and in the banking sector, with the recapitalisation of the banks and a sustained reduction in bad debts. The Portuguese economy and society are thus demonstrating that a sustainable future is already being built.

Original Story: El País – Mario Centeno (Opinion)

Translation: Richard Turner