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Portugal 2017 OECD Economic Survey Boosting Growth and Well-being

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Portugal has undertaken an ambitious structural reform programme since 2011. Reforms have spanned across a wide range of policy areas, product markets, labour markets, taxes, regulations and the public sector.

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Portugal 2017 OECD Economic Survey Boosting Growth and Well-being

  1. 1. OECD ECONOMIC SURVEY OF PORTUGAL 2017 6 February 2017, Lisbon http://www.oecd.org/eco/surveys/economic-survey-portugal.htm Boosting growth and well-being
  2. 2. 2 The economy is recovering Source: Calculations based on OECD Economic Outlook: Statistics and Projections (database). 145 150 155 160 165 170 175 180 185 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 billion EUR Real GDP
  3. 3. 3 The economy is increasingly more open 0 10 20 30 40 50 60 70 80 90 100 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Evolution of exports of goods and services % of GDP Exports Imports Exports and Imports Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).
  4. 4. 4 Competitiveness has improved Export Performance measures the expansion of a country’s exports relative to the expansion of import demand from its trading partners. Improvements in export performance reflect rising market shares in the imports of trading partners. Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database). 60 70 80 90 100 110 120 2000 2002 2004 2006 2008 2010 2012 2014 Export performance Index 2000 = 100 Portugal Germany Italy Spain
  5. 5. 5 Unemployment is falling Unemployment rate, % Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database) and Banco de Portugal (2016), “General Statistics”, BPstat (database). 0 5 10 15 20 2010 2011 2012 2013 2014 2015 2016 2017 2018
  6. 6. SOME VULNERABILITIES REMAIN
  7. 7. General government debt, Maastricht definition, per cent of GDP 7 Public debt is high Source: Calculations based on OECD (2016), OECD Economic Outlook: Statistics and Projections (database). 50 60 70 80 90 100 110 120 130 140 150 2000 2005 2010 2015 2020 2025 2030 Under current plans Higher interest rate Lower inflation
  8. 8. 8 Corporate debt needs to be brought down 1. The non-financial sector debt presented includes loans, debt securities and trade credits. Household includes non-profit institutions serving households. Source: Banco de Portugal (2016), BPstat Database and ECB (2016), Statistical Data Warehouse, European Central Bank. 70 90 110 130 150 170 190 2008 2009 2010 2011 2012 2013 2014 2015 2016 Private sector debt1 % of GDP Non-financial corporations Households
  9. 9. 9 The banking sector remains fragile 0 5 10 15 20 25 30 KOR PRT ITA ESP USA JPN MEX TUR HUN FRA GBR POL DEU CHE BEL OECD CZE SVK NLD GRC IRL SWE Ratio of capital to risk-weighted assets Per cent, Q2 20161 Regulatory Tier 1 Regulatory Source: International Monetary Fund, Banco de Portugal and European Central Bank.
  10. 10. NPLs as a percentage of total gross loans, Q2 2016 10 Non-performing loans are high Source: IMF (2016), Financial Soundness Indicators (FSI Database), International Monetary Fund. 0 2 4 6 8 10 12 14 16 18 20 22 KOR CHE GBR SWE USA JPN DEU MEX NLD TUR BEL FRA POL SVK CZE OECD ESP HUN PRT IRL ITA GRC 37
  11. 11. Share of non-performing loans, per cent 11 Corporates represent a high share of NPLs Source: Banco de Portugal (2016), BPstat Database and ECB (2016), Statistical Data Warehouse, European Central Bank. 0 2 4 6 8 10 12 14 16 18 2008 2009 2010 2011 2012 2013 2014 2015 2016 Non-financial corporations Housing Consumption
  12. 12. 12 Investment is weak Total gross fixed capital formation 40 60 80 100 120 140 160 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 Q1 = 100 Portugal Spain Italy Euro area¹ 1. Euro area countries that are also OECD members (including Latvia). Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).
  13. 13. Firms aged 0-2 years-old, as a % of all firms, latest data 13 Start-up rates are low 0 2 4 6 8 10 12 14 FIN NOR AUT DNK ITA ESP CHL AUS PRT LUX BEL SWE HUN NZL USA NLD GBR TUR Source: OECD DynEmp v.2 database; C. Criscuolo et al. (2014), “The Dynamics of Employment Growth: New Evidence from 18 Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.
  14. 14. 14 Young firms contribute more to productivity growth -4 -2 0 2 4 6 8 10 12 -4 -2 0 2 4 6 8 10 12 Labour productivity growth Total factor productivity growth Young Firms Other Firms Average annual productivity growth, per cent, latest data Young firms are defined as those aged five years-old or less. Source: OECD calculations based on data from Integrated System of Business Accounts (Sistema Integrado de Contas, SCIE).
  15. 15. 15 Access to financing is the biggest obstacle to investment 0 1 2 3 4 5 6 7 8 FIN SVK NLD DEU AUT FRA BEL EA ESP IRL ITA PRT GRC Index scale 1-10 Source: ECB (2016), “Survey on the access to finance of enterprises (SAFE)”, Statistical Data Warehouse, European Central Bank.
  16. 16. Sources of investment financing for Portuguese SMEs, Per cent of firms, first semester of 20161 16 SMEs are still too dependent on bank financing “Internal funds” covers retained earnings or sale of assets. “Other sources” covers debt securities issued and equity investment . Source: ECB (2016), “Survey on the access to finance of enterprises (SAFE)”, Statistical Data Warehouse, European Central Bank. 0 2 4 6 8 10 12 14 16 18 20 Other sources Grants/subsidised bank loan Internal funds Other loans Factoring Leasing or hire-purchase Bank loan
  17. 17. 17 Additional reforms in the judicial system are crucial Source: European Commission (2016), The 2016 EU Justice Scoreboard and Direcção-Geral da Política de Justiça. 0 200 400 600 800 1000 1200 DNK EST AUT POL HUN NLD SVN FIN SWE CZE LVA SVK ESP FRA ITA PRT 2010 2014 Days needed to resolve civil, commercial, administrative and other cases
  18. 18. Years required to resolve an insolvency case, 2015 18 The insolvency process is still too lengthy Source: World Bank (2016), Doing Business 2016: Measuring Regulatory Quality and Efficiency (database) and APAJ (2015), “Processo Especial de Revitalização”, Turn Analysis, No. 7, 2nd quarter, Associação Portuguesa dos Administradores Judiciais. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 IRL JPN CAN SVN BEL FIN NOR AUS DNK ISL GBR AUT NLD DEU NZL KOR ESP USA OECD ITA MEX FRA PRT HUN ISR LUX SWE CZE EST POL CHE CHL GRC SVK TUR A. Years required to resolve an insolvency case 2015
  19. 19. Index scale of 0-6 from least to most restrictive, latest data 19 Barriers to competition in transport sectors are high Source: OECD (2016), OECD Product Market Regulation Statistics (database). 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 GBR DEU SVK CHE HUN SWE JPN NLD BEL ESP OECD CHL ITA IRL CZE MEX GRC POL KOR FRA PRT TUR Air Road Rail
  20. 20. EUR per thousand kilowatt hours paid by medium sized industrial consumers, 2015 20 Electricity prices are high, hampering competitiveness Source: Eurostat (2016), “Electricity prices by type of user”, Tables by Themes.
  21. 21. RAISING SKILLS
  22. 22. Gap with respect to the United States, per cent, 20141 22 Labour productivity is low Labour productivity is measured by GDP per hour worked. Source: OECD (2016b), “GDP per capita and productivity levels”, OECD Productivity Statistics (database). -80 -60 -40 -20 0 20 40 -80 -60 -40 -20 0 20 40 MEX CHL POL KOR TUR EST HUN PRT CZE GRC ISR SVK SVN JPN NZL ISL OCDE GBR UE ESP ITA CAN FIN AUS SWE AUT CHE DNK DEU FRA IRL NLD BEL NOR LUX
  23. 23. Percentage of working age population having attained at least upper secondary education, 20151 23 Improving skills is key 1. Working age population: 25-64 years-olds. Source: OECD (2016), Education at a Glance 2016: OECD Indicators. 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 CZE SVK EST POL CAN USA CHE LVA FIN DEU SVN KOR ISR AUT HUN NOR SWE DNK IRL GBR AUS FRA OECD NLD NZL ISL BEL LUX GRC CHL ITA ESP PRT TUR MEX
  24. 24. 24 Learning outcomes are improving Source: PISA 2015 Results: Excellence and Equity in Education (Vol. I). Average of PISA scores in mathematics, science and reading 465 470 475 480 485 490 495 500 505 465 470 475 480 485 490 495 500 505 2000 2003 2006 2009 2012 2015 Portugal OECD average
  25. 25. Percentage of the population aged 18 to 24 having attained at most lower secondary education and not being involved in further education or training, 2015 25 Early school leaving rate is high Source: Eurostat (2016), "Youth education and training", Eurostat Database. 0 2 4 6 8 10 12 14 16 18 20 22 0 2 4 6 8 10 12 14 16 18 20 22 ESP ISL ITA PRT HUN EST EU GBR NOR BEL DEU FRA LUX FIN NLD GRC DNK AUT SWE IRL SVK CZE POL CHE SVN
  26. 26. 26 Grade repetition is too commonly used 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 ESP PRT BEL NLD DEU ITA USA OECD AUT CAN AUS ISR EST POL NZL SWE DNK CZE SVK FIN GBR SVN ISL JPN KOR NOR % of 15-year-old students who have repeated at least one year Source: OECD (2012), Equity and Quality in Education: Supporting Disadvantaged Students and Schools.
  27. 27. 27 Inequities in the education system persist 0 5 10 15 20 25 30 35 2006 2015 2009 2012 Science Reading Mathematics Portugal OECD average OECD minimum/maximum % of PISA score variance explained by students’ socio-economic background Source: PISA 2015 Results: Excellence and Equity in Education (Vol. I); PISA 2012 Results: What Students Know and Can Do (Vol. I); PISA 2012 Results: Excellence Through Equity (Vol. II); PISA 2009 Results: Overcoming Social Background (Vol. II) and PISA 2006, Vol. 2: Data.
  28. 28. Upper-secondary vocational education and training enrolment rates, 2014 28 The VET system needs a thorough evaluation Source: OECD (2016), Education at a Glance 2016: OECD Indicators and OECD (2015), Education at a Glance 2015: OECD Indicators. 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 CZE FIN AUT SVK NLD SVN CHE LUX BEL ITA NOR AUS POL DEU TUR PRT OCDE SWE GBR FRA DNK ISR LVA MEX EST ESP NZL GRC ISL CHL HUN JPN KOR CAN IRL
  29. 29. Professional management is insufficiently used Global competitiveness index ranging from 0 (non-professional) to 7 (professional management), 2014-151 29 Managerial skills remain low Source: World Economic Forum (2015), The Global Competitiveness Index Historical Dataset 2006-2015. 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 ITA HUN GRC SVN PRT TUR MEX POL SVK ESP CHL LVA KOR ISR FRA CZE OECD EST AUT ISL JPN LUX DEU AUS CAN GBR BEL SWE USA DNK IRL CHE NLD FIN NOR NZL
  30. 30. % of GDP, latest data 30 R&D expenditures are low Source: OECD, Main Science and Technology Indicators database. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 CHL MEX GRC SVK POL TUR NZL ESP LUX PRT ITA HUN EST IRL CAN GBR NOR ISL CZE NLD AUS FRA OECD SVN BEL USA DEU CHE DNK AUT SWE FIN JPN ISR KOR
  31. 31. As a percentage of product and/or process-innovating small and medium sized enterprises (SMEs), 2010-12 31 Cooperation between SMEs and research institutions is low Source: OECD (2015), OECD Science, Technology and Industry Scoreboard 2015: Innovation for growth and society. 0 5 10 15 20 25 30 0 5 10 15 20 25 30 CHL ITA TUR LVA PRT ISR POL SVK FRA NLD ESP DNK CZE EST KORDEUNORHUNSWEGBR JPN BEL GRC AUT FIN SVN
  32. 32. MAIN RECOMMENDATIONS
  33. 33. • Maintain momentum for structural reforms, in conjunction with a continuous ex-ante and ex-post evaluation of reforms. • Continue gradual fiscal consolidation to ensure the decline of public debt without jeopardising the recovery. 33 Macroeconomic Policies
  34. 34. • Strengthen current regulatory incentives for reducing non-performing loans (NPLs), including through write-offs and sales. • Support the development of a market for distressed debt, notably through the creation of asset management companies. • Improve the workings of insolvency rules by: – reconsidering the privileged treatment of public creditors – enlarging the scope for simple-majority decisions among creditors – shortening out-of-court settlement procedures. 34 Recommendations to reduce NPLs and the corporate debt overhang
  35. 35. Recommendations to improve the business climate and raise investment • Revise land use regulations and limit discretionary powers of municipalities in licensing procedures. • Ease entry requirements in professional services. • Further reduce trial length and the backlog of pending court cases by expanding court capacity and assigning specialised judges to specialised courts. • Phase out electricity generation guaranteed prices sooner than currently planned. • Improve the efficiency of ports.
  36. 36. Recommendations to raise skills • Perform a thorough evaluation of all vocational training programs. • Unify the different systems of vocational education by establishing a single dual VET system, including work-based learning in companies. • Provide more and earlier individualised support to students at risk of falling behind to reduce grade repetition. • Improve teachers’ training and shift more resources towards primary and pre-primary education. • Strengthen the links between research and the business sector through better incentives for academics to cooperate with industry. • Raise managerial skills by developing specific training courses for managers. • Target life-long learning programmes towards the low-skilled.

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