In a recent 140-page report about Portugal, the Organization for Economic Cooperation and Development (OECD) identifies the high weight of the non-performing loans (NPL) within the banking system as one of the main risks for the country’s Economy, despite “market improvements” over the last few years.
According to OECD, Portugal’s economy has moved back to pre-crisis levels and is expected to grow by about 2% a year between 2018 and 2020.
Comparatively low living standards, however, mean many Portuguese perceive themselves to be worse off than a decade ago.
However, the club of 36 rich nations recognizes the economic conditions in Portugal had «improved markedly» over the past few years, with unemployment falling 10% points since 2013 to below 7%, «one of the largest reductions in any OECD country over the past decade».
Strong exports had sustained growth in the years following the global financial crisis, underpinned by a tourism boom: travel and tourism exports grew at an annual rate of more than 10% between 2010 and 2017, and by 2017 accounted for almost half of all service exports, the report said.
Despite this growth, the poverty rate of the working age population remained high and subjective perceptions of wellbeing were below pre-crisis levels. This reflected «modest living standards compared with other OECD countries»and little convergence with those economies over the past few decades, the report added.
Since 2014 Portugal has been recovering from a deep recession that followed the European sovereign debt crisis and a tough economic adjustment programme overseen by the EU and the International Monetary Fund.
Further employment gains and rising real wages were likely to underpin future growth in consumption. But an expected slowdown among Portugal’s main export markets would act as a headwind to further export growth, the report added.
An increase in interest rates — potentially arising from a normalisation of monetary policy as the European Central Bank phases out its government bond-buying programme — posed a risk to business and household spending, according to the OECD.
Improvements in the fiscal balance had contributed to a fall in the public debt-to-national output ratio from 130.6% in 2014 to about 121% last year. The ratio, however, remained one of the highest among developed economies, reflecting a debt burden that «still limits the government’s ability to respond to future economic shocks».
Bank vulnerabilities also weakened the resilience of the Portuguese economy, according to the OECD. While NPL as a percentage of total lending have been reduced by more than 35% since their peak in 2016, the level of problem bank debt remained one of the highest among OECD countries.
Other risks included Brexit and rising protectionism, the report said. «Any significant increase in policy barriers in international trade» would also have a detrimental effect on Portugal as a «small, open economy», the OECD said.
Original Story: Financial Times | Peter Wise
Photo: FreeImages.com / Armindo Caetano
Edition:Prime Yield
