The PESSOA model allows us to break down the Portuguese per capita GDP growth rate into several explanatory factors. The results obtained with this general equilibrium model suggest that external factors played an important role in the expansion of per capita GDP in the 2011-18 period. This contribution mostly reflects developments in euro area economic activity and the noticeable dynamism of national exports. In contrast, external determinants had a negative contribution to the rate of change of GDP per capita in the 2007-10 period, largely due to the temporary collapse of world trade in late 2008.

The remaining explanatory factors that break down the dynamics of the GDP per capita presented a sharp negative contribution in the 2011-14 period. Amongst these are financial determinants (reflecting the increase in the risk premium of the Portuguese economy and the financing costs of non-financial corporations), as well as the determinants associated with the public sector (reflecting the tax increases and the reduction of public consumption). In turn, the aggregate contribution of internal factors over the 2015-18 period was once again positive, with an important impact from wage moderation in real terms.

For further details see Paulo Júlio and José R. Maria (2017), “Output in the Portuguese post-2008 period: A general equilibrium narrative”, Bank of Portugal Economic Studies, Vol. 3, No. 2, pp. 53-69.

Prepared by Paulo Júlio and José R. Maria. The analysis, opinions and results expressed herein are the sole responsibility of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

 
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