{
  "title": "IMF Executive Board Concludes 2018 Article IV Consultation with Portugal",
  "publication": "IMF News, September 12, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/09/12/pr18345-portugal-imf-executive-board-concludes-2018-article-iv-consultation",
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  "summary": "Executive Board concluded the Article IV consultation with Portugal on September 7, 2018.",
  "publishDate": "2018-09-12",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Executive Board concluded the Article IV consultation with Portugal on September 7, 2018.\n- Following robust growth in 2017 driven by investment and exports, activity is expected to moderate in 2018.\n- Unemployment continues to fall on the back of sustained employment growth; the output gap is estimated to turn positive in 2018.\n- Rising energy prices have pushed up consumer prices, while core inflation remains subdued.\n- Strong import growth (linked to investment) has largely been offset by robust exports, particularly tourism, leaving the current account largely unchanged in 2017.\n- Headline fiscal deficit deteriorated in 2017 owing to one-off bank recapitalization costs; primary structural balance is estimated to have improved by 0.4 percent of GDP reflecting strict budget execution.\n- Sovereign funding costs declined significantly since early 2017 but saw volatility in May and June 2018 owing to spillovers from political uncertainty in Italy.\n- Credit growth continues to lag the recovery as banks repair balance sheets; rising capital ratios, falling rates of non-performing loans, and lower impairments improved bank resilience in 2017, with further improvement expected in 2018.\n- No significant acceleration in credit growth is expected; the economy should continue deleveraging its external balance sheet."
    },
    {
      "heading": "Executive Board assessment and risks",
      "content": "- Directors welcomed Portugal’s strong economic performance driven by investment and exports and the job-rich recovery that has led to falling unemployment and broad-based employment creation.\n- Directors noted increased external risks from a slowdown in trading partners’ growth and financial-market spillovers.\n- Directors encouraged sustaining policy and reform momentum to ensure resilience to shocks, reduce vulnerabilities, and facilitate convergence toward the average income level of the European Union.\n- Directors emphasized that current favorable conditions provide an opportunity to frontload planned fiscal consolidation to avoid pro-cyclical adjustment and build policy space for contingent spending needs."
    },
    {
      "heading": "Fiscal policy and public debt",
      "content": "- Directors recommended focusing lasting consolidation on restraining current expenditure, including via reforms to public employment and pensions.\n- Efforts should be made to improve budget monitoring and control, especially in the health-care sector.\n- Directors welcomed the authorities’ commitment to reducing public debt and bringing it back to more sustainable levels.\n- On constant policies, the ratio of public debt to GDP should steadily decline in the coming years."
    },
    {
      "heading": "Banking sector and financial stability",
      "content": "- Directors welcomed improved banking sector resilience with higher capital and increased profitability.\n- While progress has been made in reducing the stock of non-performing loans (NPLs), further steps are needed to bring down the level of NPLs.\n- To prevent new vulnerabilities, Directors encouraged continued focus on preserving credit standards, monitoring mortgage markets, and employing macro-prudential measures where necessary."
    },
    {
      "heading": "Structural reforms and growth",
      "content": "- Directors emphasized the need to boost potential growth to reduce balance sheet risks and converge to average EU levels of productivity and income.\n- They noted that improving educational attainment can offset the impact on growth of an ageing population, but recommended further structural reforms to foster investment and allow high-skilled workers to meet their potential.\n- Specific areas highlighted for additional gains:\n  - Removing unnecessary regulatory barriers.\n  - Lowering energy prices.\n  - Better coupling wages to productivity.\n  - Further improving the debt enforcement and insolvency regime.\n- Directors also noted the need to avoid reemergence of external imbalances as a byproduct of increased investment and encouraged policies to boost private saving and increase incentives to finance projects through non-debt-creating flows."
    },
    {
      "heading": "Selected economic indicators (Year-on-year percent change, unless otherwise indicated)",
      "content": "- Real GDP: 2017 = 2.7; 2018 = 2.3; 2019 = 1.8\n- Private consumption: 2017 = 1.9; 2018 = 1.6; 2019 = (not provided for 2019 in source table — see table)\n- Public consumption: 2017 = -0.2; 2018 = 1.0; 2019 = (not provided for 2019 in source table — see table)\n- Gross fixed capital formation: 2017 = 9.2; 2018 = 7.6; 2019 = 6.3\n- Exports: 2017 = 7.9; 2018 = 6.2; 2019 = 4.7\n- Imports: 2017 = 6.8; 2018 = 5.5; 2019 = (not provided for 2019 in source table — see table)\n- Contribution to growth (Percentage points)\n  - Total domestic demand: 2017 = 2.9; 2018 = 2.4; 2019 = (not provided for 2019 in source table — see table)\n  - Foreign balance: 2017 = -0.4; 2018 = -0.5; 2019 = (not provided for 2019 in source table — see table)\n- Resource utilization\n  - Employment: 2017 = 3.3; 2018 = 1.2; 2019 = (not provided for 2019 in source table — see table)\n  - Unemployment rate (Percent): 2017 = 8.9; 2018 = 7.3; 2019 = 6.7\n- Prices\n  - GDP deflator: 2017 = 1.4; 2018 = (not provided for 2018 in source table — see table)\n  - Consumer prices (Harmonized index): 2017 = 1.7; 2018 = (not provided for 2018 in source table — see table)\n- Money and credit (End of period, percent change)\n  - Bank credit to non-financial private sector: 2017 = -3.1; 2018 = 0.1; 2019 = 0.8\n  - Broad money: 2017 = 7.5; 2018 = 3.4; 2019 = (not provided for 2019 in source table — see table)\n- Fiscal indicators (Percent of GDP)\n  - General government balance: 2017 = -3.0; 2018 = -0.7; 2019 = -0.3\n  - Primary government balance: 2017 = 0.9; 2018 = 2.8; 2019 = 3.1\n  - Structural primary balance (Percent of potential GDP): 2017 = 3.0; 2018 = (not provided for 2018 in source table — see table)\n  - General government debt: 2017 = 125.7; 2018 = 120.8; 2019 = 117.2\n- Current account balance (Percent of GDP): 2017 = 0.5; 2018 = 0.2; 2019 = -0.1\n- Nominal GDP (Billions of euros): 2017 = 193.1; 2018 = 200.6; 2019 = 207.5\n\nSources: Bank of Portugal; Ministry of Finance; National Statistics Office (INE); Eurostat; and IMF staff projections.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm.\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/09/12/pr18345-portugal-imf-executive-board-concludes-2018-article-iv-consultation"
    }
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    "Published: September 12, 2018",
    "Executive Board concluded the Article IV consultation with Portugal on September 7, 2018.",
    "Following robust growth in 2017 driven by investment and exports, activity is expected to moderate in 2018.",
    "Unemployment continues to fall on the back of sustained employment growth; the output gap is estimated to turn positive in 2018.",
    "Rising energy prices have pushed up consumer prices, while core inflation remains subdued.",
    "Strong import growth (linked to investment) has largely been offset by robust exports, particularly tourism, leaving the current account largely unchanged in 2017.",
    "Headline fiscal deficit deteriorated in 2017 owing to one-off bank recapitalization costs; primary structural balance is estimated to have improved by 0.4 percent of GDP reflecting strict budget execution.",
    "Sovereign funding costs declined significantly since early 2017 but saw volatility in May and June 2018 owing to spillovers from political uncertainty in Italy.",
    "Credit growth continues to lag the recovery as banks repair balance sheets; rising capital ratios, falling rates of non-performing loans, and lower impairments improved bank resilience in 2017, with further improvement expected in 2018.",
    "No significant acceleration in credit growth is expected; the economy should continue deleveraging its external balance sheet.",
    "Directors welcomed Portugal’s strong economic performance driven by investment and exports and the job-rich recovery that has led to falling unemployment and broad-based employment creation.",
    "Directors noted increased external risks from a slowdown in trading partners’ growth and financial-market spillovers.",
    "Directors encouraged sustaining policy and reform momentum to ensure resilience to shocks, reduce vulnerabilities, and facilitate convergence toward the average income level of the European Union.",
    "Directors emphasized that current favorable conditions provide an opportunity to frontload planned fiscal consolidation to avoid pro-cyclical adjustment and build policy space for contingent spending needs.",
    "Directors recommended focusing lasting consolidation on restraining current expenditure, including via reforms to public employment and pensions.",
    "Efforts should be made to improve budget monitoring and control, especially in the health-care sector.",
    "Directors welcomed the authorities’ commitment to reducing public debt and bringing it back to more sustainable levels.",
    "On constant policies, the ratio of public debt to GDP should steadily decline in the coming years.",
    "Directors welcomed improved banking sector resilience with higher capital and increased profitability.",
    "While progress has been made in reducing the stock of non-performing loans (NPLs), further steps are needed to bring down the level of NPLs.",
    "To prevent new vulnerabilities, Directors encouraged continued focus on preserving credit standards, monitoring mortgage markets, and employing macro-prudential measures where necessary.",
    "Directors emphasized the need to boost potential growth to reduce balance sheet risks and converge to average EU levels of productivity and income.",
    "They noted that improving educational attainment can offset the impact on growth of an ageing population, but recommended further structural reforms to foster investment and allow high-skilled workers to meet their potential.",
    "Specific areas highlighted for additional gains:",
    "Directors also noted the need to avoid reemergence of external imbalances as a byproduct of increased investment and encouraged policies to boost private saving and increase incentives to finance projects through non-debt-creating flows.",
    "Real GDP: 2017 = 2.7; 2018 = 2.3; 2019 = 1.8",
    "Private consumption: 2017 = 1.9; 2018 = 1.6; 2019 = (not provided for 2019 in source table — see table)",
    "Public consumption: 2017 = -0.2; 2018 = 1.0; 2019 = (not provided for 2019 in source table — see table)",
    "Gross fixed capital formation: 2017 = 9.2; 2018 = 7.6; 2019 = 6.3",
    "Exports: 2017 = 7.9; 2018 = 6.2; 2019 = 4.7",
    "Imports: 2017 = 6.8; 2018 = 5.5; 2019 = (not provided for 2019 in source table — see table)",
    "Contribution to growth (Percentage points)",
    "Resource utilization",
    "Prices",
    "Money and credit (End of period, percent change)",
    "Fiscal indicators (Percent of GDP)",
    "Current account balance (Percent of GDP): 2017 = 0.5; 2018 = 0.2; 2019 = -0.1",
    "Nominal GDP (Billions of euros): 2017 = 193.1; 2018 = 200.6; 2019 = 207.5",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm.](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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