2019 OECD ECONOMIC SURVEY OF PORTUGAL Promoting convergence and wellbeing Lisbon, 18 February 2019 http://www.oecd.org/economy/surveys/portugal-economic-snapshot
@OECDeconomy @OECD
Key messages
• Further progress in improving public finances, reducing private debt and the health of the banking system can improve resilience to shocks • Export performance can be enhanced through policies that better enable exporters to innovate and grow
• The efficiency of the judicial system can be further improved, thereby spurring economic activity
2
Economic recovery is well entrenched but further improvements in wellbeing are needed
3
The economy is growing after a double dip recession Real GDP y-o-y % changes
y-o-y % changes
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
2007
2009
2011
2013
2015
2017
2019
-5
Source: OECD Economic Outlook. 4
Unemployment has continued to decline Unemployment rate
Percentage
Percentage
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
2007
2009
2011
2013
2015
2017
2019
0
Source: OECD Economic Outlook.
5
Domestic demand is now also driving the recovery Annual percentage change 15
Exports
15
Domestic demand
10
10
5
5
0
0
-5
-5
-10
-10
-15
2007
2009
2011
2013
2015
2017
-15
Source: OECD Economic Outlook. 6
The economic expansion will continue
% change
2018
2019
2020
Gross domestic product (GDP) Private consumption
2.1
2.1
1.9
2.2
1.8
2.0
Government consumption Gross fixed capital formation
0.7
-0.1
-0.1
4.5
5.6
4.7
Exports of goods and services Imports of goods and services
6.0
4.5
3.7
6.2 7.1
4.7 6.4
4.2 5.7
1.3
1.3
1.4
Unemployment rate Consumer price index Source: OECD
7
Convergence has been limited GDP per capita, percentage of OECD average
Source: OECD Compendium of Productivity Indicators 8
Wellbeing can be improved OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017 20% top performers
60% middle performers
20% bottom performers
Portugal
11 16
18
20 24
Environmental Personal qualit y security
Housing
Work-lif e balance
28
30
Income and Social Health status wealth connections
31
32
33
Jobs and Educatio n and Civic earnings skills engagement
35
Subje ctive well-being
Source: OECD (2017), OECD Better Life Index
9
Encouraging fiscal sustainability and green growth
10
The public debt ratio is falling, but remains high Gross government debt as a percentage of GDP % of GDP
% of GDP
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
Source: OECD Economic Outlook: Statistics and Projections (database).
11
Ageing costs will impact public debt General government debt as a percentage of GDP
160 140 120 100 80 60
Continued consolidation effort
40
Continued consolidation effort and not offsetting increase in age-related costs Weakening consolidation effort
20 0 2000
Weakening consolidation effort and not offsetting ageing-related costs 2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Source: OECD, European Commissions, calculations by the OECD Secretariat. 12
There are too many VAT exemptions and reduced rates VAT Revenue Ratio
Note: The VAT Revenue Ratio is the ratio between the actual value-added tax revenue collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. Source: OECD. 13
Public transport is used much less than in other EU countries
95 90 85 80 75 70 65 60 55 50
LTU PRT NOR ISL GBR SVN NLD DEU SWE LUX EU FIN GRC ITA BEL DNK ESP FRA LVA EST IRL POL AUT SVK CHE CZE TUR HUN
Percentage of individual car use in total passenger transport, 2016
95 90 85 80 75 70 65 60 55 50
Source: Eurostat. 14
Recommendations to improve fiscal sustainability and make growth greener • Continue gradual fiscal consolidation. • Raise taxes on diesel fuel, and increase energy taxes on coal and natural gas. • Encourage public transport use and the development of new shared transport solutions.
15
Improving financial stability
16
Bank profitability has improved, but remains low Return on Equity (%) 20
2018 Q3
18
20
2016 Q3
18
HUN
CZE
LVA
LTU
SWE
-4
SVK
-4
SVN
-2 NOR
-2 AUT
0
EST
0
POL
2
NLD
2
ESP
4
LUX
4
DNK
6
IRL
6
EU
8
FRA
8
BEL
10
GBR
10
ISL
12
ITA
12
PRT
14
FIN
14
DEU
16
GRC
16
Source: European Banking Authority (EBA), “EBA Risk Dashboard” 17
Nonperforming loans remain elevated, despite improvements Non-performing loans as a ratio of total outstanding loans, 2018 Q3 20
43
20
LUX
SWE
FIN
GBR
CZE
EST
NOR
0
DEU
0
NLD
2 BEL
2 DNK
4
ISL
4
LTU
6
FRA
6
SVK
8
AUT
8
LVA
10
EU
10
ESP
12
POL
12
IRL
14
HUN
14
SVN
16
ITA
16
PRT
18
GRC
18
Source: European Banking Authority (EBA), “EBA Risk Dashboard”. 18
Personal bankruptcy law is relatively stringent OECD insolvency indicator: Treatment of failed entrepreneurs, 2016 1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
CAN TUR USA AUS CHL GBR JPN AUT CHE DNK ESP FIN FRA GRC IRL ITA LVA MEX NOR NZL SVK SVN BEL DEU EST HUN ISR KOR NLD PRT SWE CZE
1.0
Source: Adapted from Adalet McGowan et al. (2017). 19
Court proceedings for credit claims can be long
70
70 Total
Credit claim
60
60
50
50
40
40
30
30
20
20
10
10
0
less than 1 year
1 to 2 years
2 to 5 years
more than 5 years
0
Source: Ministry of Justice. 20
Recommendations to improve financial stability • Continue to monitor NPL reduction plans, translating performance in achieving targets into capital requirements. • Make bankruptcy a viable solution for heavily indebted individuals, reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy proceedings. • Introduce an out-of-court mechanism to facilitate the liquidation of non-viable firms.
21
Further raising export performance
22
The improvement in export performance has been impressive Export performance, Index 2007=100 140
140 Portugal
130
Germany
Italy
Spain
Hungary
130
120
120
110
110
100
100
90
90
80
80
70
70
60
2007
2009
2011
2013
2015
2017
60
Source: OECD Economic Outlook: Statistics and Projections (database). 23
20 18 16 14 12 10 8 6 4 2 0
Source: Bank of Portugal, calculations by the OECD Secretariat. Travel and tourism
Minerals and metals
Chemicals, rubbers
Machines
Agri-food
Transport material
Services
Transportation
Other services
Hides, leather and textiles
Other manufacturing
Wood, cork and paper
Clothing and footwear
Telecomm. and IT
Construction
Personal, cultural and rec.
Intellectual property use
Insurance and pension
Financial services
Tourism has been booming Percentage contribution to total export growth over the 2009-17 period
Goods
20 18 16 14 12 10 8 6 4 2 0
24
The economy can still be more outward oriented % of GDP 120
120 FDI stock
Exports
100
100
80
80
60
60
40
40
20
20
0
PRT
Source: OECD.
HUN
CZE
BEL
0
25
Most firms are too small to be significant exporters Share of firms with more than 10 employees %
%
Source: Eurostat.
LUX
DEU
DNK
AUT
GBR
NOR
LTU
EST
0
IRL
0
LVA
2
FIN
2
ISL
4
HUN
4
NLD
6
SWE
6
SVN
8
POL
8
PRT
10
BEL
10
FRA
12
ITA
12
ESP
14
CZE
14
GRC
16
SVK
16
26
It takes too long to prepare and pay taxes Time to prepare and pay taxes, 2018 Hours
Hours 300
250
250
200
200
150
150
100
100
50
50
0
0
EST LUX CHE NOR IRL FIN LTU AUS GBR NLD SWE JPN AUT CAN DNK BEL FRA ISL NZL ESP OECD LVA TUR USA KOR SVK GRC DEU CZE SVN ITA ISR MEX PRT COL HUN CHL
300
Source: World Bank Doing Business Indicators.
27
Logistics infrastructure can be improved Ranking for logistics infrastructure
Worse
Better
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
PRT
HUN
CZE
ESP
ITA
BEL
FRA
DEU
0
Source: World Bank Doing Business Indicators. 28
Improving workers skills is key for raising competitiveness Percentage of individuals that have completed education 60
60 EU
Portugal
50
50
40
40
30
30
20
20
10
10
0
15-24
25-34
35-44
45-54
55-64
Upper secondary and post-secondary education Source: Eurostat.
15-24
25-34
35-44
45-54
55-64
0
Tertiary education 29
Recommendations for further promoting export performance • Simplify the tax system by reducing the use of special provisions and ambiguity in tax language. • Ensure that port concession contracts specify a minimum level of investment by the operator and do not renew concessions without opening a new public tender. • In awarding port concessions, take into account the price that bidders will charge port users. • Target lifelong learning opportunities to the low-skilled, including by collecting information on the private returns to skills and making it publicly available.
30
Enhancing judicial efficiency to foster economic activity
31
Court proceedings are shorter than before, but still long Average time needed to resolve civil and commercial cases, first instance courts, in days
Source: Council of Europe European Commission for the efficiency of justice (CEPEJ) 32
The average time to pay is long in Portugal, partly reflecting weak contract enforcement The average time actually taken to pay, Business to business, in days.
Source: Intrum (2018), “European Payment Reports 2018�. 33
Loan forbearance is common, while collateral enforcement is difficult The forbearance loans ratio as a percentage of total outstanding loans in the corporate sector, Q2 2018 25
25
20
20
15
15
10
10
5
5
0
GRC PRT SVN IRL ITA ESP ISL NOR HUN POL EU DEU NLD AUT DNK BEL GBR SWE FRA FIN EST LUX
0
Source: EBA, “Risk Assessment Report” December 2018. 34
Recent reforms reduced pending proceedings, but court congestion remains significant Number of initiated, terminated and pending proceedings per judge 1200
Initiated
Terminated
1200
Pending
1000
1000
800
800
600
600
400
400
200
200
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
0
Source: Pordata. 35
Significant bottlenecks remain in some courts Civil cases, 2017 0.6
Resolution rate (LHS)
cases in stock/number of judges (ratio, RHS)
1800
0.5
1500
0.4
1200
0.3
900
0.2
600
0.1
300
0
0
How to read this chart: Court efficiency (measured by “Resolution rate� which is the number of resolved cases divided by the cases in stock) tends to be low where court resources are relatively scarce. Source: Ministry of Justice and High Council for the Judiciary. 36
Regulation in the legal professions is too strict OECD Indicators of regulation in the legal services sector
Source: OECD Product Market Regulations Statistics (database). 37
Alternative dispute resolution mechanisms can be developed further thousands 14
Number of proceedings in “Justice of peace courts� vs. in the court system.
thousands 1400
incoming cases, justice of peace courts (LHS) pending cases, justice of peace courts (LHS)
12
1200
incoming cases, court system (RHS) 10
1000
8
800
6
600
4
400
2
200
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
Source: INE. 38
Recommendations for enhancing the judiciary to foster economic activity • Increase the managerial autonomy of the courts so that they can effectively allocate resources. • Fully analyse the data collected from the information system on court proceedings (CITIUS) so that it allows the courts to identify problematic cases and those that should be prioritised. • Set up an independent supervisory body to ensure that regulations in the legal profession are in the public interest. • Continue to enhance the capacity of the Public Prosecution Office to address economic and financial crime. Public prosecutors should continue to undertake specialised training in this area. • Establish an electronic registry of interests for all government members and senior civil servants that is regularly updated. 39
Improving labour utilisation and further reducing poverty
40
The incidence of long-term unemployment is still quite high As a percentage of total labour force, 2018 Q3 21
Unemployment rate
21
of which, long-term unemployment
ISL
CZE
DEU
NLD
POL
HUN
NOR
GBR
CHE
AUT
DNK
SVN
EST
LTU
0
BEL
0
IRL
3
SWE
3
LUX
6
SVK
6
FIN
9
PRT
9
LVA
12
FRA
12
ITA
15
TUR
15
ESP
18
GRC
18
Source: Eurostat Labour Force Survey database. 41
Low-skilled people face significant employment barriers Percentage of those unemployed or with weak labour market attachment facing each employment barrier 80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Lack of skills
Scarce job Health limitations "High" non-labour "Low" relative opportunities income work experience (regress)
Source: OECD (2018), “Faces of joblessness in Portugal�.
No past work experience
"High" earnings "High" care replacements responsabilities
0
42
Recommendations for improving labour utilisation and reducing poverty • Avoid across-the-board rises in hiring subsides, limiting them to those at high risk of long-term unemployment and those at risk of poverty. • Expand well-designed vocational training programmes (i.e. “Aprendizagem” and “Cursos de Educação e Formação de Adultos”), so that they reach more of the low-skilled population. • Consolidate the two vocational education systems into a single dual VET system with strong workplace training and perform a thorough evaluation of all vocational training.
43
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