Portugal: Recovery and Risks
IMF News, September 13, 2018
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- Published: September 13, 2018
Recovery and Growth
- Real GDP growth reached 2.7 percent in 2017, the highest rate since 2000.
- In 2018, real GDP should grow by 2.3 percent.
- Recovery driven by re-energized investment, robust exports, and stable consumption, supporting a rebalancing of the economy.
- Investment and exports are highlighted as strong drivers of the job-rich recovery.
Labor Market and Employment
- Job-rich growth: the unemployment rate fell to a record low of 7. 1 percent in April 2018.
- Employment grew by 3.3 percent in 2017.
- Labor force participation increased by 1.1 percent in 2017.
- Long-term unemployed are returning to work in large numbers.
External Sector
- Trade has played an increasingly important role as a driver of economic growth.
- Booming tourism has boosted services; exports of services have offset an increase in goods imports.
Public Debt and Vulnerabilities
- High public debt is a major vulnerability.
- Under current policies, Portugal's debt-to-GDP ratio is projected to decline by 23 percentage points from its 2017 level to 103 percent in 2023.
- Given its high starting point, Portugal needs to keep public debt on a firm downward trajectory to build buffers against future shocks and maintain investor confidence.
Fiscal Performance and Policy Recommendations
- Fiscal performance in 2017 was robust, reflecting strong economic growth, controlled budget execution, and falling interest costs.
- Continued fiscal discipline will be key to reducing debt.
- Fiscal consolidation should focus on a sustainable plan to reduce current expenditure, with particular attention on wages and pensions.
- Fiscal discipline is described as a cornerstone of debt reduction.
Portugal: Recovery and Risks — September 13, 2018