Population 10.655 million
GDP 210.62 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
1.4 |
-1.7 |
-3.1 |
-2 |
|
Inflation (yearly average) (%)
|
1.4 |
3.6 |
2.7 |
1 |
|
Budget balance (% GDP)
|
-9.8 |
-4.4 |
-5.2 |
-4.9 |
|
Current account balance (% GDP)
|
-10 |
-6.5 |
-2.9 |
-1.5 |
|
Public debt (% GDP)
|
93.5 |
108.1 |
115.5 |
123 |
| (e) estimate (f) forecast | ||||
STRENGTHS
- Good logistics and communications infrastructure
- Attractive tourist destination
- Beginning of sectoral and geographic diversification, rapid development of the food-processing industry
- Absence of a property bubble
- Fall in unit labour costs and reform effort
WEAKNESSES
- Limited size of manufacturing industry, specialisation in low value-added sectors exposed to strong international competition
- Inadequate innovation efforts and lack of skilled labour
- Heavy dependence on the European economic situation
- High level of private and public debt
- Banks strongly exposed to sovereign risk
Risk assessment
A seriously worsened economic situation
The recession deepened in 2012 due to the continued austerity policy and slower European demand. GDP is expected to decline for the third consecutive year. Consumption will continue to contract, though at a slower pace, because of the new austerity measures (a significant rise in fiscal pressure in particular) in a context of household deleveraging, lower real wages and growing unemployment (the rate hit 15.5% in 2012 and over 35% for those under 25). Investment will be similarly affected by continuing slack demand and sluggish credit. Only external trade is likely to continue contributing positively to growth, even though contraction in imports is slowing. Finally, in view of the weakness of domestic demand, inflationary pressures will be negligible.
Businesses hit hard
Businesses, 80% of them SMEs that live off the domestic market, already weakened by low profitability, weak capacity for self-financing and high debt levels, have been hit hard by the collapse of growth and of consumption. This contraction cannot at present be offset by the strength of exports since these remain dependent on the health of the eurozone. Bankruptcies, which had already risen by 33% in 2011, have reached historic levels. Sectors like construction or trade have been particularly affected. Payment incidents recorded by Coface, which had already soared in 2011, also continue to increase. Recovery-driving sectors will be difficult to find except by developing niches, in particular, tourism, food processing or international logistics.
Imbalances being reduced
The international crisis exacerbated the economy’s underlying weaknesses: excessively high consumption, weak productivity gains and too rapid growth in wages, resulting in a significant loss of competitiveness, a deficit increase and a sharp rise in debt. Government debt reached 108% of GDP in 2011, that of households and businesses 92% and 157% respectively. Much remains to be done to create the basis for a return to dynamic and lasting growth. Since the end of 2009, however, the trend towards eroding competitiveness has been reversed due to lower unit labour costs. Meanwhile, reforms have been implemented (greater flexibility of the labour code, improvement of competition legislation and of the judicial system). The growth in exports made possible by redirecting some sales towards non-European countries and competitiveness gains, in a context of contracting imports, has made it possible to reduce the current account deficit. Fiscal adjustment is continuing, which will result in a reduction of financing needs of the economy and the State.
A country on a drip-feed, austerity increasingly unpopular
Strangled by debt, Portugal had to resort to international aid in April 2011 (€78bn). This assistance and injections of liquidity in the banking sector by the ECB made it possible to mitigate the fall in capital inflows. After months of austerity treatment (wage cuts, general rise in taxes and duties, among them VAT), new government announcements in September 2012 (including an increase in employee contributions) aroused the anger of the population in a country hitherto unused to social outbursts. The “troika’s” decision to grant Lisbon an additional grace period to meet the objective of reducing the public deficit changed nothing and the Executive had to back-track. The centre-right coalition, in power since the June 2011 elections, emerged weakened. The government returned to the fray in October, announcing a new income tax hike, which was passed by parliament, despite entrenched social protests. Nevertheless, fiscal commitments will be hard to meet, because of the spiral of recession. However, besides the reduction of the macroeconomic imbalances, there are positive elements to note. Bond rates have eased and the Treasury has succeeded in exchanging bills maturing in 2013 against a new debt repayable in 2015. This improves the chances of a return to the markets in late 2013 and removes the threat of public debt restructuring comparable to that of Greece.
