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Economic Bulletin - Spring 2011: Projections for the Portuguese economy: 2011-2012

In line with common practice by Banco de Portugal and in accordance with the rules of the Eurosystem projection exercises, the current projections only consider the budgetary measures already approved and well-specified, in particular those of the State Budget for 2011. In this context, it should be underlined that the budgetary developments underlying the current exercise do not embody all measures needed to fulfil the demanding budgetary goals set by the Portuguese State for 2011 and, in particular, for 2012. In 2011 non-negligible implementation risks persist, arising inter alia from the unprecedented magnitude of the budgetary consolidation. In 2012, the set of additional measures of a permanent nature required to achieve the goal set by the authorities reaches a very substantial scale. The adoption of these measures implies another significant contraction in economic activity, similarly to the projection for 2011.
Additionally, the current projection does not consider the inevitable deleveraging process of the private sector, including the banking system. In the latter case, the nature of this process will be defined in detail in the coming months, involving, in any case, a significant change in financing conditions and an increase in the respective degree of restrictiveness. This implies additional downside risks to economic activity.

Thus, the current results, pointing to a contraction in economic activity of 1.4 percent in 2011, followed by a growth rate of 0.3 percent in 2012, are particularly constrained by the above assumptions. Given that measures for 2012 still lack specification, the results for that year should be especially qualified, taking into account that neither the budgetary consolidation process, nor the deleveraging of the economy will be completed in 2011 and that their implementation is essential to promote the effective adjustment of the external financing needs. In fact, the latter remain almost stable in the current projection, despite the sharp fall in domestic demand and the favourable behaviour of exports.

The article with the projections for the Portuguese economy is supplemented with the following analytical boxes:

  • “Car sales developments in 2010”
  • “The impact of a fiscal change directed at increasing the external competitiveness of the Portuguese economy”


    Since last year, the Spring Economic Bulletin includes an article entitled Issue for Discussion, written by Banco de Portugal economists and aiming at a wide audience. In this issue, the article focuses on "Monetary policy and financial stability: an open debate" and is authored by Isabel Marques Gameiro, Carla Soares and João Sousa.

    In addition, this Economic Bulletin includes, as usual, four articles written by economists of Banco de Portugal. These articles, of the sole responsibility of the authors, are the following:

    • “Good (and not so good) policy at the zero bound”, by Sandra Gomes, João Sousa and Pedro Teles 
    • “Fiscal policy in a small euro area economy”, by Vanda Almeida, Gabriela Castro, Ricardo Mourinho Félix and José R. Maria
    • “Productivity, size and capital intensity in selected Portuguese manufacturing sectors: a non-parametric analysis”, by João Amador
    • “Immigrants in the Portuguese labour market” by Sónia Cabral and Cláudia Duarte

    Banco de Portugal, 29 March 2011