Portugal is one of the poorest countries among the richer countries. Portugal is a developed country and part of the EU that by itself makes it a rich country with a generally rich population when you compare with the rest of the world. Over the years Portugal has become a diversified and increasingly service-based economy since joining the European Community in 1986.
During 2009-16, Portugal experienced a severe economic crisis characterised by falling GDP, high unemployment, rising government debt and high bond yields. This was caused by a combination of the global recession, lack of competitiveness and limitations of being in the Euro. Total imports (primarily food and beverages, wheat, crude oil, machinery, automobiles and raw materials) have been greater than total exports (of which the most important are textiles, clothing, footwear, paper pulp, wine, cork, and tomato paste.
Fundamentally Portuguese economy is fueled by a high income mixed economy and depends on the countries of Spain, Germany, France and Italy for most imports. A majority of exports go to European Union countries. Gradually Portuguese Economy got steady, expanding continuously since the third quarter of 2014, with a yearly GDP growth of 1.5% registered in the second quarter of 2015. The Government budget deficit has also been reduced from 11.2% of GDP in 2010 to 4.8% in 2014..
In 2011 Portugal obtained a bailout worth 78 billion euros ($92.2 billion) from Europe and the International Monetary Fund (IMF). Its economy contracted as much as 3.2 percent in 2012. During the crisis, the unemployment rate nearly hit 18 percent and among young people that rate was closer to 40 percent.
After many economic and fiscal reforms, led by a center-right coalition government, under the supervision of the IMF and the European Union, Portugal said no to the last tranche from its creditors in June of 2014 and freed itself from international assistance.
Since then the economy has been blooming. The IMF forecasts a 2.5 percent growth rate for this year and an unemployment rate below 10 percent. Portugal’s near-term outlook has strengthened considerably, supported by a pick-up in investment and continued growth in exports.
Then in 2015, Portugal got a revolutionary and visionary leader Antonio Costa as prime minister who drove the country out of crisis through his policies and strategies. The boom in tourism and measures such as reduction of value added tax (VAT) from 23 percent to 13 percent helped commerce in general. Portugal is now often cited as an example of economic resurgence, applauded by international institutions.
After guiding his party to a record victory in October’s municipal elections, the Portuguese prime minister headed into the new year hoping to do even better. Although his popularity was dented by criticism of the government’s handling of deadly forest fires, Costa’s supporters hoped Portugal’s fast-paced economic recovery will quickly restore the PM’s standing. Unlike other Socialists tainted by association with tough times, Costa a tough political streetfighter behind a ready campaign smile has managed to present himself as a champion of change, able to turn the page on austerity.
He’s displayed a remarkable ability to balance leftist demands to reverse recession-era belt-tightening with a cautious thrift that’s pleased foreign investors and Portugal’s partners in the eurozone. If there is one thing all commentators agree on, its António Costa’s political; there’s near unanimity on his political skills.
Costa continued his economic balancing act, face down a new opposition leader and deploy his political skills to manage a tricky relationship with the two far-left parties that prop up his minority government. The goal was securing an absolute majority in the next parliamentary elections, due in 2019.
Europe’s Socialists have beaten a path to Costa’s door. What’s happening in Portugal is an example … of what you can do with a government action program that is both credible and true to your values. Those hoping that Portugal will lead a European center-left resurgence, however, are likely to be disappointed. As Costa admits, Portugal’s model is hard to export. There are no prêt-à-porter reforms. They must be tailored to the specific needs of each country.
The economic recovery in Portugal has been mainly driven by the policies rather than the Portuguese government. The stimulus program from the ECB has meant the bank has been buying Portuguese bonds. At the same time, the ECB kept the euro lower, supporting exports.
However, the current socialist government, backed by two far-left parties in parliament, believes something different. It argues that its anti-austerity strategy is benefiting the economy. The government led by Antonio Costa is in power since 2015 and has rolled back many austerity measures, including pension and salary cuts.
Its key to economic growth is fostering private consumption. This year, we’re going to have the biggest economic growth ever registered in the 21st century, Costa claimed in a political rally. It is all due to the fact that government had made numerous cuts during the bailout program.
There are three main factors fostering the Portuguese economy: the policies from the current government, which have given more financial room to households, the change in rhetoric that austerity has gone has made people more confident and lastly, the international economic landscape has also helped. There’s more room for improvement and the economy will continue growing as tourism and industry as strong economic are key components. Portugal’s economic performance will depend on external and internal factors.
In March this year IMF Managing Director Christina Legarde while hailing the Prime Minister Antonio Costa’s economic performance said that Portugal and the Portuguese people deserved tremendous credit for their efforts. And so, after a decade of crisis and recovery, we can say that Portugal has made great strides:Its real GDP is now back above the level it was before the crisis, and its unemployment rate is at a fifteen-year low, with the program-era labor reform facilitating strong job creation; Its business climate is more attractive to investors. For example, in the mid-2000s it used to take almost a month to start a business. Now it takes less than five days; Its economy has rebalanced to become more export-oriented, including a reinvigorated tourism sector, leading the external current account to move from chronic deficits of around 10 percent of GDP to balanced; It has made impressive progress in cutting the fiscal deficit and reducing borrowing costs Currently, Portugal has set priorities of further strengthening the underlying fiscal balance to help accelerate the pace of debt reduction and positively differentiate Portugal from other high-debt countries. Adjustment today could allow policy to be loosened later, when it might be needed. There has been much progress restoring the banks’ balance sheets in the last few years; here our message is to keep pressing with this important work.
Structural reforms to boost saving, investment and productivity are essential to raise living standards while helping the economy deleverage, reducing existing vulnerabilities. Key steps include making the labor market work better, simplifying regulations, and improving the efficiency of judicial processes. These reforms can be targeted in a way that shield the poorest in society and reduce inequality. In fact, Portugal has a strong track record of undertaking reforms whilst protecting the most vulnerable.
Portugal is well placed to benefit from this technological revolution. It has long been an outward-facing country and is successfully reorienting its economy towards technology and innovation: For example, Google has created a service center for Europe, the Middle East and Africa, which has been recently expanded from about 500 to 1300 employees.