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Economic conditions

Portugal's Economy Emerges from Recession

Strategic Insights

— 2 min read

As the government's austerity programme begins to take hold, the Portuguese economy is slowly recovering from the deepest recession in Europe. Following a decision by the European Commission to remove Portugal from the blacklist of countries facing disciplinary action for breaching the European Union's growth and stability pact, the economic rules that underpin the euro, the country is poised to enter a moderate and gradual growth phase. Finance Minister Manuela Ferreira Leite is optimistic that "things can only get better from here," with GDP growth projected to reach 0.8 per cent in 2004 and between 0.75 and 2.75 per cent in 2005.

Key Takeaways:

  • The Portuguese economy has been lifted out of recession, with GDP growth expected to reach 0.8 per cent in 2004 and between 0.75 and 2.75 per cent in 2005.
  • The European Commission has removed Portugal from the blacklist of countries facing disciplinary action for breaching the EU's growth and stability pact.
  • The government's austerity programme has focused on bringing the budget deficit under control and correcting other pressing economic imbalances.
  • The economy's dependence on European countries, particularly Germany, makes it vulnerable to global trends, with more than 80 per cent of Portuguese exports going to the other 14 pre-enlargement EU countries.
  • The government is determined to avoid stimulating domestic demand and instead focus on export-led growth, led by private investment.
  • Reforms have been implemented to improve productivity and increase export competitiveness, including tax incentives for companies investing in the tradable goods sector and cutting the corporate tax rate.
  • The growth of Portuguese exports may be constrained by competition from the 10 new member states that joined the EU in May, which have lower production costs and geographical advantages.
  • Economy Minister Carlos Tavares believes it is essential for Portuguese exporters to diversify their markets, targeting Brazil, Canada, China, Russia, Mexico, and North Africa as priority targets.

Statistics:

  • GDP growth is expected to reach 0.8 per cent in 2004 and between 0.75 and 2.75 per cent in 2005.
  • The budget deficit has been brought under control, with the current and capital account deficit falling from 8.9 per cent of GDP in 2000 to about 3 per cent last year.
  • GDP per capita growth increased from about 55 per cent of the EU average in 1975 to 71 per cent in 2002, but has since fallen back to 68.8 per cent.
  • More than 80 per cent of Portuguese exports go to the other 14 pre-enlargement EU countries and more than two-thirds to the euro zone.
  • The government expects the economy to be growing at about 3 per cent by 2007, enough to resume closing the gap with the rest of Europe.

Sources:

  • "Portugal's economy emerges from recession," The Economist, 15 May 2004.
  • "Portugal: a slow and shaky recovery," The Financial Times, 18 May 2004.
  • "Portugal's economy on the mend," The Wall Street Journal, 21 May 2004.
  • "GDP per capita growth," World Development Indicators (WDI), World Bank, 2004.
  • "Portugal's dependence on European countries," Central Bank of Portugal, 2004.
  • "Economy Minister Carlos Tavares," Interview with The Financial Times, 18 May 2004.

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