Portugal: IMF Staff concluding Statement of the Seventh Post-Programme Monitoring Mission and economic facts

Today’s Newsletter is giving you the last economic situationon Portugal since we published a special Newsletter on Portugal’s Textile andClothing Industry. With this, we accomplish to let you have a complete dossier,also with the latest economic facts of the country, which might help tocomplete your planning activities with that country

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

The Portuguese authorities announced on November 29, 2018 their intention to pay off their remaining debt to the IMF this year. Portugal’s early repayments, started since 2015, have already markedly reduced its outstanding debt to the Fund. Early repayments to the IMF reflect Portugal’s favourable market access conditions and send a positive signal to investors and markets. These operations are financially advantageous because they improve the public debt maturity profile and generate interest bill savings. Combined with the policy of maintaining strong cash reserves, this contributes to a further build-up of financial defences against future adverse events. Once the announced repayment takes place, Portugal will exit Post-Program Monitoring status.

Economic activity remains cyclically strong, although moderating since GDP growth peaked in 2017. Third-quarter real GDP growth of 2.1 % y-o-y suggests a deceleration after first- and second-quarter outturns, respectively, of 2.2 %and 2.4 % y-o-y. The deceleration reflects largely some loss of momentum in exports and investment. The job market has continued to improve, with unemployment falling from 7.9 % in December 2017 to 6.6 % in September 2018, driven by broad-based employment growth.

The economy is projected to continue to decelerate gradually towards its medium-term potential. Growth is projected at 2.2 % in 2018, easing to 1.8 % in 2019, and toward 1.4 % in the medium term. Investment and exports should continue to be important drivers of growth, albeit at a slower pace.

The main downside risks looming over the economy relate tothe external environment. Portugal would directly feel the negativeconsequences of lower euro area wide growth, Brexit-related turbulence, andweaker international trade following increased protectionism. On the domesticfront, there is a risk that the government might adopt weaker policies thatcould undermine investor confidence and the business environment, and possiblyresult in increased budgetary rigidities and a reduction in the quality ofgovernment expenditures. In contrast, strong macroeconomic, macro-financial,and structural policies would not only bolster the outlook, but would alsoincrease Portugal’s resilience to market volatility and other shocks, includingin the event of spill-overs from other euro area countries, as shown by theexperience of recent months. On the upside, more robust cyclical developmentsthan currently projected could materialize.

Robust economic growth, careful expenditure execution, and a falling interest bill mean that the 2018 fiscal deficit target will likely be achieved, and public debt will decline again this year. For 2019, while the budget targets a headline deficit of 0.2 % of GDP, staff project a deficit of 0.4 % of GDP, reflecting more moderate economic growth assumptions for next year (1.8 % rather than 2.2 % assumed in the budget). This forecast assumes that policies evolve in line with the 2019 budget, including in areas such as the unfreezing of career progressions. After removing ‘one-off’ effects, interest payments, and the cyclical components, this would imply a slight deterioration of the structural primary balance of 0.1 % of GDP relative to 2018. Under staff’s assumptions, debt will continue its downward trajectory to 121 % of GDP in 2018, 118 % in 2019, and 103 % of GDP by 2023.

Despite declining in the last few years, high public debt remains a major vulnerability, requiring continuing fiscal consolidation efforts. The currently favourable conditions provide an opportunity to frontload the multi-year fiscal consolidation envisaged in the government’s Stability Program, and thus speed up public debt reduction, contributing to favourable borrowing conditions throughout the economy. Moreover, a stronger primary surplus would also provide additional buffers against adverse changes in interest rates and economic growth and other contingencies. Such strengthening needs to be built on a durable containment of current expenditure, including through comprehensive reviews of the level and composition of public employment and of pensions, especially at the higher end, while preserving capital spending.

Important progress has been made in repairing the banks’ balance sheets, but continued effort is needed to reduce vulnerabilities. Asset quality improved further this year, with NPL ratios falling from 13.3 % at end 2017 to 11.7 % in June 2018, while the regulatory capital ratio has remained stable above 15 % in the same period. Nevertheless, banks are constrained by still high NPL levels and low profitability, and will face additional cost pressures as MREL requirements are phased in. Other vulnerabilities include significant concentrations of exposures to real estate (38 % of total assets at end-2017, with housing loans accounting for about 28 % of total assets) and, to a lesser extent, public debt (about 15 % of banks’ assets at end-2017, with the domestic sovereign accounting for 8 % of total assets). Supervisors should ensure that banks follow through on their NPL reduction plans and strengthen their internal risk management and corporate governance. They should also encourage banks to step up efforts to improve operational efficiency and profitability. Finally, supervisors should continue to monitor the evolution of housing prices, which have been rising fast in Portugal in recent years, and ensure that banks have sufficient capital buffers to withstand adverse shocks to their balance sheets.

Sustained robust growth over the medium-term is key to the continuing deleveraging in the public and private sectors, helping reduce vulnerabilities. Despite seeing significant reductions in the last several years, household and nonfinancial corporate debt ratios in Portugal exceed the corresponding European averages. Just like with public debt, deleveraging benefits from sustained economic growth. Strengthening growth will require fostering investment—as well as domestic saving to avoid a weakening of the country’s external position. Raising productivity and investment demands maintaining the focus on improving the regulatory environment, supporting firms’ capacity to grow, strengthen their capital, and innovate, and building up skills levels in the population. Continuing ongoing efforts to strengthen the legal and institutional framework for debt enforcement and insolvency are necessary to support a more productive allocation of economic resources. Keeping labour markets flexible is important for Portugal’s ability to process adverse shocks, and maintaining competitiveness requires wage growth consistent with developments in productivity.


Newsletter of last week:

African Business Opportunity

Here is the Review of last week’s NEWS. For your convenience just click on the feature for fast access

Additive Manufacturing

U.S. additive manufacturing appreticeship now available


Animal Wellfare

Chanel to halt use of Exotic Skins



U.S. Eddie Lampert’s fund, ESL Investments, reportedly partnering with Cyrus Capital Partners in Sears bid



November Trade winds blow China off Course



Results of KappAhl’s Annual General Meeting2018



USDA Cotton and Products Update – Republic of Uzbekistan


When the auditor’s visit is actually welcome



Swiss Consumer Price Index fell by 0.3% in November 2018


OECD annual inflation picks up to 3.1 % in October 2018


U.S. Added 155000 Jobs in November -Unemployment at 3.7%


Worldwide Yarn and Fabric Production by ITMF 


Easing growth momentum in the OECD area 



New path of PG DENIM 


Absolute Denim is first Denim manufacturerto convert 100 % of production to Archroma Aniline-Free*Indigo



The 4th Edition of Intex South Asia 2018 was a resounding success


ICAC’s 77th Plenary Meeting emphasises Cotton’s Importance to Africa and its Future Potential


LAUNCH Circular Innovation Challengefinalists battle for support


ICAC Closes 77th Plenary Meeting, Adopts Final Statement and Announces Dates for 2019



EU Commission presents ways to furtherstrengthen the Euro’s global role



Researchers develop tough Hydrogels for 3DPrinting Applications in repairing load-bearing Soft Tissues


Polartec Power Air to reduce fibre shedding 


Toray to launch sustainable Suede Nonwoven



Coats invests in revolutionary sustainabledigital thread dyeing technology


Intellectual Property

25 patent applications for LENZING™ WebTechnology


Ownership Change

Clean Show sold to Messe Frankfurt


New Products

Crealet portable Warp Tension MeasuringHead TMT


Nextil implements Lycra Fitsense for secondskin fabrics


Tailored warp beam frames for ribbonweaving by Swiss Crealet


Teijin Aramid and Westex by Milliken’s expertise together make a winning union



Changes in KappAhl’s Group management


Change in composition of Suominen’s Nomination Board


Rico Randegger becomes the new Head of the Rieter Business Group After Sales June 1, 2019



REACH – New criteria helps companies betterassess safety and impact of nanomaterials



What is ahead for the retail industry in2019


Crew scraps cheaper brand, putting deal with Amazon in doubt


568 jobs saved as House of Fraser’s Kendalsstore in Manchester to remain open


The Harajuku store that will not let youbring clothes home


Mike Ashley: “Mainstream high streets arealready dead”


Retailers face “nerve-wracking run-up toChristmas”


Hudson’s Bay to spotlight homegrowndesigners with pop-up showcase



CHOMARAT now with certification forenvironmental & energy management with ISO 14001 and ISO 50001


Textile Art

World premiere of CON-TEXTURES sculpture atthe ADD-ITC – art meets science



NCTO endorses USMCA – pledges to LobbyCongress to adopt the Agreement



Water risk report for textile and garmentindustry in Vietnam



Free Webinar by IDTechEx on RFID (December18, 2018)