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Economic Bulletin April 2014

  • In 2013, the Portuguese economy continued the adjustment of the macroeconomic imbalances that were accumulated over the past decades and showed the first signs of recovery in economic activity.
  • In 2013, the current and capital account recorded a surplus of 2.6 percent of GDP. Furthermore, the goods and services account registered a surplus for the first time in the last 70 years. These developments reflect, on the one hand, a significant growth in exports and, on the other, a moderate growth of imports, after years of continued decline.
  • The fiscal consolidation process continued in 2013. The budget deficit stood at 4.9 percent of GDP, below the Economic and Financial Assistance Program (EFAP) target. The consolidation effort resulted from an increase in the tax burden, especially on households, which outweighed the impact on public expenditure induced by the re-instatement of the holiday and Christmas bonuses. The public debt ratio continued to increase, reaching 129 percent by end-2013.
  • From the second quarter of 2013 onwards, the correction of macroeconomic imbalances, within a single currency context, was accompanied by a reversal of the downward trend in GDP recorded during the previous 10 quarters. Although in annual average terms GDP declined 1.4 percent in 2013, a marked recovery was registered throughout the year.
  • The behavior of the Portuguese economy was determined by two types of factors: the international environment and the domestic framework arising from the implementation of EFAP and from the institutional environment, whose reform is still in an incipient stage.
  • Concerning the international environment, the behavior of the Portuguese economy in 2013 was unfavorably influenced by developments in the activity of the main trading partners, despite the signs of recovery recorded throughout the year. On the contrary, the fall in the prices of raw materials, especially oil prices, benefited the adjustment of the Portuguese economy.
  • In a context of low inflationary pressures, the European Central Bank’s monetary policy decisions should have been a stimulus for the Portuguese economy. However, the financial fragmentation of the euro area continued to hinder the transmission of monetary stimulus to the nonfinancial sector in Portugal. The establishment of a Banking Union is crucial to mitigate this fragmentation.
  • The increase in economic activity since the second quarter of 2013 has been supported by the gradual recovery of domestic demand and by the maintenance of a robust export growth. Employment has increased in line with economic activity, contributing to the reduction in the unemployment rate. Developments in the labor market kept some distinctive features, namely the increase in fixed-term employment and in the incidence of long-term unemployment.
  • The recovery of the Portuguese economy is still fragile. It is essential to continue the reduction in the indebtedness level and to deepen the program of structural reforms, in particular to enable the reduction of unemployment. The sustainability of public finances, the increase in firms’ financial autonomy, and the soundness and stability of the financial system are key conditions for an allocation of resources that fosters investment in the tradable goods sectors – a necessary condition to increase per capita GDP and households’ disposable income. Only the fulfillment of these goals can ensure the sustainability of the adjustment and mitigate its costs.

In addition to the article on the Portuguese economy in 2013, this Economic Bulletin includes the projections for the Portuguese economy already disclosed on the Bank of Portugal website on 26 March 2014. As usual, the Economic Bulletin includes four signed articles, authored by Banco de Portugal economists (or in co-authorship with external researchers). The articles, which are the sole responsibility of the authors, are the following:

  • "Household income mobility in the European Union and in Portugal: an analysis of labor market and demographic events" by Nuno Alves and Carlos Martins
  • "Portuguese exports in the global value chains" by João Amador and Robert Stehrer
  • "Capitalization and credit provision: evidence from the United States" by Sudipto Karmakar
  • "Early warning indicators of banking crises: exploring new data and tools" by António Antunes, Diana Bonfim, Nuno Monteiro and Paulo M. M. Rodrigues

Lisbon, 23 April 2014