2019 OECD ECONOMIC SURVEY OF PORTUGAL Promoting convergence and wellbeing Lisbon, 18 February 2019 http://www.oecd.org/economy/surveys/portugal-economic-snapshot @OECDeconomy @OECD
Key messages • Further progress in improving public finances, reducing private debt and the health of the banking system can improve resilience to shocks • Export performance can be enhanced through policies that better enable exporters to innovate and grow • The efficiency of the judicial system can be further improved, thereby spurring economic activity 2
Economic recovery is well entrenched but further improvements in wellbeing are needed 3
The economy is growing after a double dip recession Real GDP y-o-y % changes y-o-y % changes 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 -5 -5 2007 2009 2011 2013 2015 2017 2019 Source: OECD Economic Outlook. 4
Unemployment has continued to decline Unemployment rate Percentage Percentage 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 2007 2009 2011 2013 2015 2017 2019 Source: OECD Economic Outlook. 5
Domestic demand is now also driving the recovery Annual percentage change 15 15 Exports Domestic demand 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 2007 2009 2011 2013 2015 2017 Source: OECD Economic Outlook. 6
The economic expansion will continue % change 2018 2019 2020 2.1 2.1 1.9 Gross domestic product (GDP) 2.2 1.8 2.0 Private consumption 0.7 -0.1 -0.1 Government consumption 4.5 5.6 4.7 Gross fixed capital formation Exports of goods and services 6.0 4.5 3.7 Imports of goods and services 6.2 4.7 4.2 7.1 6.4 5.7 Unemployment rate 1.3 1.3 1.4 Consumer price index Source: OECD 7
Convergence has been limited GDP per capita, percentage of OECD average Source: OECD Compendium of Productivity Indicators 8
Wellbeing can be improved OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017 20% top performers 60% middle performers 20% bottom performers Portugal 11 16 18 20 24 28 30 31 32 33 35 Environmental Personal Housing Work-life Income and Social Health status Jobs and Education and Civic Subjective quality security balance wealth connections earnings skills engagement well-being Source: OECD (2017), OECD Better Life Index 9
Encouraging fiscal sustainability and green growth 10
The public debt ratio is falling, but remains high Gross government debt as a percentage of GDP % of GDP % of GDP 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: OECD Economic Outlook: Statistics and Projections (database). 11
Ageing costs will impact public debt General government debt as a percentage of GDP 160 140 120 100 80 60 Continued consolidation effort 40 Continued consolidation effort and not offsetting increase in age-related costs Weakening consolidation effort 20 Weakening consolidation effort and not offsetting ageing-related costs 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: OECD, European Commissions, calculations by the OECD Secretariat. 12
There are too many VAT exemptions and reduced rates VAT Revenue Ratio Note: The VAT Revenue Ratio is the ratio between the actual value-added tax revenue collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. Source: OECD. 13
Public transport is used much less than in other EU countries Percentage of individual car use in total passenger transport, 2016 95 95 90 90 85 85 80 80 75 75 70 70 65 65 60 60 55 55 50 50 SVN BEL ESP EST SVK LTU PRT NOR ISL GBR NLD DEU SWE LUX EU FIN GRC ITA DNK LVA IRL POL AUT CHE HUN FRA CZE TUR Source: Eurostat. 14
Recommendations to improve fiscal sustainability and make growth greener • Continue gradual fiscal consolidation . • Raise taxes on diesel fuel, and increase energy taxes on coal and natural gas. • Encourage public transport use and the development of new shared transport solutions. 15
Improving financial stability 16
Bank profitability has improved, but remains low Return on Equity (%) 20 20 2018 Q3 2016 Q3 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 GRC DEU FIN PRT ITA ISL GBR BEL FRA EU IRL DNK LUX ESP NLD POL EST AUT NOR SVN SVK SWE LTU LVA CZE HUN Source: European Banking Authority (EBA), “EBA Risk Dashboard” 17
Nonperforming loans remain elevated, despite improvements Non-performing loans as a ratio of total outstanding loans, 2018 Q3 43 20 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 GRC PRT ITA SVN HUN IRL POL ESP EU LVA AUT SVK FRA LTU ISL DNK BEL NLD DEU NOR EST CZE GBR FIN SWE LUX Source: European Banking Authority (EBA), “EBA Risk Dashboard”. 18
Personal bankruptcy law is relatively stringent OECD insolvency indicator: Treatment of failed entrepreneurs, 2016 1.0 1.0 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0.0 0.0 CAN TUR USA AUS CHL GBR JPN AUT CHE DNK ESP FIN FRA GRC IRL ITA LVA MEX NOR NZL SVK SVN BEL DEU EST HUN ISR KOR NLD PRT SWE CZE Source: Adapted from Adalet McGowan et al. (2017). 19
Court proceedings for credit claims can be long 70 70 Total Credit claim 60 60 50 50 40 40 30 30 20 20 10 10 0 0 less than 1 year 1 to 2 years 2 to 5 years more than 5 years Source: Ministry of Justice. 20
Recommendations to improve financial stability • Continue to monitor NPL reduction plans , translating performance in achieving targets into capital requirements. • Make bankruptcy a viable solution for heavily indebted individuals , reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy proceedings. • Introduce an out-of-court mechanism to facilitate the liquidation of non-viable firms. 21
Further raising export performance 22
The improvement in export performance has been impressive Export performance, Index 2007=100 140 140 Portugal Germany Italy Spain Hungary 130 130 120 120 110 110 100 100 90 90 80 80 70 70 60 60 2007 2009 2011 2013 2015 2017 Source: OECD Economic Outlook: Statistics and Projections (database). 23
Source: Bank of Portugal, calculations by the OECD Secretariat. 10 12 14 16 18 20 0 2 4 6 8 Financial services Tourism has been booming Insurance and pension Percentage contribution to total export growth over the 2009-17 period Intellectual property use Personal, cultural and rec. Construction Telecomm. and IT Clothing and footwear Services Wood, cork and paper Other manufacturing Hides, leather and textiles Other services Goods Transportation Transport material Agri-food Machines Chemicals, rubbers Minerals and metals Travel and tourism 0 2 4 6 8 10 12 14 16 18 20 24
The economy can still be more outward oriented % of GDP 120 120 FDI stock Exports 100 100 80 80 60 60 40 40 20 20 0 0 PRT HUN CZE BEL Source: OECD. 25
Most firms are too small to be significant exporters Share of firms with more than 10 employees % % 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 SVK GRC CZE ESP ITA FRA BEL PRT POL SVN SWE NLD HUN ISL FIN LVA IRL EST LTU NOR GBR AUT DNK DEU LUX Source: Eurostat. 26
It takes too long to prepare and pay taxes Time to prepare and pay taxes, 2018 Hours Hours 300 300 250 250 200 200 150 150 100 100 50 50 0 0 EST LUX CHE NOR IRL FIN LTU AUS GBR NLD SWE JPN AUT CAN DNK BEL FRA ISL NZL ESP OECD LVA TUR USA KOR SVK GRC DEU CZE SVN ITA ISR MEX PRT COL HUN CHL Source: World Bank Doing Business Indicators . 27
Logistics infrastructure can be improved Ranking for logistics infrastructure Worse 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 PRT HUN CZE ESP ITA BEL FRA DEU Better Source: World Bank Doing Business Indicators . 28
Improving workers skills is key for raising competitiveness Percentage of individuals that have completed education 60 60 EU Portugal 50 50 40 40 30 30 20 20 10 10 0 0 15-24 25-34 35-44 45-54 55-64 15-24 25-34 35-44 45-54 55-64 Upper secondary and post-secondary education Tertiary education Source: Eurostat. 29
Recommendations for further promoting export performance • Simplify the tax system by reducing the use of special provisions and ambiguity in tax language. • Ensure that port concession contracts specify a minimum level of investment by the operator and do not renew concessions without opening a new public tender. • In awarding port concessions , take into account the price that bidders will charge port users . • Target lifelong learning opportunities to the low-skilled , including by collecting information on the private returns to skills and making it publicly available. 30
Enhancing judicial efficiency to foster economic activity 31
Court proceedings are shorter than before, but still long Average time needed to resolve civil and commercial cases, first instance courts, in days Source: Council of Europe European Commission for the efficiency of justice (CEPEJ) 32
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