27/10/2014 - Fundamental reforms have helped put the Portuguese economy back on the right track, but a durable recovery will require additional measures to improve export competitiveness, create jobs and ensure social protection for those most in need, according to the latest OECD Economic Survey of Portugal.
The Survey, presented in Lisbon by OECD Secretary-General Angel Gurría and Portugal’s Minister of Finance Maria Luís Albuquerque, draws attention to the significant steps the country has taken to emerge from the severe recession and successfully exit the external financial assistance programme.
According to the Survey, Portugal’s GDP is projected to grow by 0.8 percent this year and 1.3 percent in 2015. It notes that export performance is improving and fiscal consolidation has put public finances on a better footing. Unemployment is declining, albeit from high levels.
“Portugal has made tremendous progress, and its reform efforts are starting to pay off,” Mr Gurría said. “The main challenge going forward is to build on what has been achieved. This means doing more to enhance productivity and competitiveness, and in turn export performance, while addressing the legacies of the crisis – high unemployment, income inequality, and poverty.” (Read the Secretary-General's speech)
The OECD identifies a series of policy reforms that will help Portugal convert its recent success in export markets into sustainable growth and job creation. Key recommendations include strengthening competition, particularly in services sectors through further regulatory reform, boosting innovation and enhancing skills. Recent reforms that promote wage bargaining at the level of individual firms, rather than via the mandatory extension of collective bargaining agreements to entire industries, should be maintained. Firm-level negotiation facilitates market entry by new firms that are crucial for strengthening productivity and creating new jobs.
The Survey recommends that Portugal should continue fiscal consolidation as planned, but that it should allow automatic stabilisers to operate if growth slows. Particular attention should be paid to the banking sector, which remains fragile as banks’ balance sheets are still burdened with a high level of non-performing loans. With many firms highly indebted and struggling to pay back loans, authorities should ensure a timely and consistent recognition of banking losses, assess the performance of insolvency procedures, and enhance them when necessary.
The crisis, and notably the steep rise in unemployment, reversed a gradual long-term decline in both inequality and poverty, and the number of poor households is now rising, with children and youth particularly affected. While measures to achieve fiscal consolidation efforts have shifted most of the burden to high-income households, the lowest income groups have also suffered significant income losses as a result of these reforms.
Portugal should strengthen the social safety net by reducing overlaps between different programmes and expanding support for those most in need. Policies to facilitate job reinsertion of unemployed people, including by scaling up adult education, should be enhanced.
An Overview of the Economic Survey of Portugal is available at: www.oecd.org/economy/economic-survey-portugal.htm
For further information, journalists are invited to contact the OECD’s Media Division (+33 1 45 24 97 00).