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Economic growth is projected to remain above 2% in 2018 and 2019, driven by both domestic demand and exports. Consumption growth will remain solid in response to further declines in the unemployment rate and stronger wage growth. Investment will be supported by a pick-up in major export market growth and increased public investment. Increased exports will be matched by higher imports as a result of the pick-up in domestic demand, leaving the current account balance relatively unchanged.
The stance of fiscal policy is projected to be mildly expansionary in 2017 and 2018. Any further fiscal expansion should be avoided given the need to reduce public debt, but there is scope to make fiscal policy more growth-friendly by adjusting the composition of spending and taxes. Productivity-enhancing reforms that ease entry barriers to professional services would reinforce the strength of the recovery.
The private sector, especially corporations, remains heavily indebted despite having deleveraged over the past four years. This adds to the vulnerability of the banking system which continues to suffer from weak profitability and non-performing loans. Policy measures that support the development of distressed debt markets would reduce financial vulnerabilities, support long-term growth and bolster fiscal stability.
Economic Survey of Portugal (survey page)