Remarks by Angel Gurría, OECD Secretary-General, delivered at the Launch of the Economic Survey of Portugal
27 October 2014, Lisbon, Portugal
(As prepared for delivery)
Madam Minister, Ambassador, Ladies and Gentlemen:
Portugal is recovering, with important reforms now bearing fruit
What a difference two years of reforms can make! When we released our last Economic Survey of Portugal two years ago, in 2012, we were at the worst point in the recession, and Portugal was in the middle of its external financial assistance programme.
Earlier this year, Portugal exited this programme, and we are now predicting positive growth – of around 0.8% in 2014– and further increases in the growth rate in subsequent years. Unemployment, while still high, has been declining for over a year. At 13.9%, the unemployment rate is lower than its peak of 17.5% in early 2013.
Fiscal consolidation has made Portugal’s public finances stronger. Portugal has gained access to market funding at lower rates than most of us would have imagined two years ago.
And that’s not all. Portugal’s economy is becoming more export-oriented. Export performance has improved remarkably, and Portuguese exports can now be found in a much wider range of countries and industries.
So how has all of this been possible? I see two important and mutually reinforcing factors at play:
First, Portugal has benefited from better European policy coordination. Financial market tensions were reduced drastically by the interventions of the European Central Bank, the European Commission and the European Union, particularly concerning the banking system.
Second, Portugal itself has forged ahead with important reforms, turning the country into one of the leading reformers in the OECD. For example: between 2008 and 2013, the competition-friendliness of Portugal’s product market regulation (PMR) moved up 15 ranks among OECD countries.
And while Portugal’s product market reforms are already beginning to pay off now, their benefits will continue to be felt in the future. Our estimates suggest that just these reforms will raise GDP by an extra 3% by the year 2020. This is a great achievement!
Despite these advances, Portugal’s recovery remains a work in progress
Despite all the improvements I have just described, Portugal’s recovery remains a work in progress. There are still many challenges ahead. We need to see stronger growth to create more jobs. Improvements in productivity and competitiveness will be crucial to future wage growth. And we’ll need to see continued improvements in export performance – again, to drive job creation, and to ensure that Portugal’s external debt is sustainable.
Firms in Portugal struggle to access credit, which remains scarce and expensive in comparison to other European countries. Many firms struggle to pay back their high levels of debt. With a likely long period of low inflation ahead of us, reimbursing debt could become even more difficult.
Finally, more needs to be done to protect the most vulnerable during these difficult times. Portugal has made efforts to distribute the burden of the current adjustment fairly, for example by making its tax system more progressive. Nevertheless, Portugal has one of the most unequal income distributions in Europe and poverty levels are high. Children and young people are particularly affected.
Looking ahead, Portugal should sustain its momentum for reforms
The Economic Survey I am presenting today goes well beyond a description and a diagnosis. It also makes recommendations that we hope will help Portugal as it builds on the good progress it has made so far. Allow me to highlight just a few of these recommendations.
First, when it comes to fiscal policy, we recommend that Portugal continues its consolidation efforts as planned. Nevertheless, if growth slows down, we would recommend allowing the automatic stabilisers to operate freely and use the existing mechanism of flexibility to avoid derailing Portugal’s recovery.
Continued efforts to improve the efficiency of the public sector will play an important role. In fact, this afternoon, an OECD team will meet with the Portuguese authorities to find ways of improving how we measure the impact of policies and reforms in Portugal. After all, it is only by measuring progress that we can identify bottlenecks – and find ways to address them.
Second, while we have seen progress in the stability of Portugal’s financial sector and an improvement in the safety buffers built into the system, more can be done. Banks should be encouraged to raise prudential capital further, and to make sure that potential losses are recognised in a timely and consistent manner. The results of the Asset Quality Review and the Stress Tests announced yesterday by the ECB go clearly in this Direction.
Third, Portugal should build on its export successes. Our recommendations include ways of strengthening competition, bolstering innovation, and improving the business climate. It will also be important not to reverse recent reforms, including in the area of wage bargaining. More also needs to be done to enhance skills. The OECD is already working closely with government and the private sector on a Skills Strategy for Portugal.
And finally, we make several recommendations on how Portugal can tackle the high inequality and poverty I described earlier. For example, this Survey highlights opportunities to reduce existing overlaps between benefits. This could help free up resources to raise benefit levels in the minimum income support scheme, RSI. We believe this would be an effective way to strengthen the support for the most vulnerable.
Excellencies, Ladies and Gentlemen:
Portugal has made tremendous progress in a very short time. And this progress has laid the foundations for better times to come. Stronger growth and falling unemployment show that past reforms are beginning to pay off.
As Portugal builds on this progress, it needs to sustain reform efforts and avoid the pitfalls of the past. As current turmoil in the financial markets shows, the crisis which began in 2007 is sadly not over yet. Allow me to congratulate Portugal, and express my hope that the Portuguese authorities will sustain the appetite for reform that they have demonstrated in the past.
Madam Minister: rest assured that the OECD will continue to work with Portugal, and for Portugal. Our common purpose is best summed up in five words: Better Policies for Better Lives.