Bright outlook for Portugal as Europe faces new recession
With the world braced for a new recession that has the United States at its core, Portugal is seemingly looking extremely fortunate. Any economic downturn creates ripple effects – but pundits predict Portugal is likely to ride these out and could offer an otherwise struggling Europe “some hope”.
Heavyweight praise came over the weekend from the Financial Times in the form of an opinion article that has since been widely shared, embellished and misquoted. But the gist – that Portugal is ‘sitting pretty’ where other countries most definitely are not – remained intact.
“In Germany, the engine of European growth, the vital, export-dependent manufacturing sector is stuttering. Italy is plagued by economic and political instability, its relationship with Brussels tense. The UK is edging towards a disastrous no-deal Brexit, which could poison its relationship with the EU for years. On top of all of this, there is the turbulence of the US-China currency war and decoupling of global supply chains,” said the text.
Yet, in this tiny country ‘on the edge of Europe’, business remains relatively buoyant.
Yes, exports are down, but they’re still chugging along nicely, say reports.
Tourism, too, appears to have had another excellent – if not record – year, with latest figures from the Bank of Portugal showing income in June reached €1.5 billion: an 8.8% increase on figures for the same period last year.
Whether data for July, August and September maintains this trend is not yet clear, but it’s obvious that investors continue to look at this country with interest – lured by any combination of attractive tax-breaks and residency packages, the ‘low crime rate’ (when compared to almost every other country in Europe), and what the FT describes as our “welcoming atmosphere”.
The national financial press also stresses that “the Portuguese economy is one of the few that is succeeding in resisting the marked slowdown of Europe’s economy”, despite the fact that 80% of this country’s exports do indeed go to Europe.
Said Dinheiro Vivo on Sunday, “of the countries determined by Eurostat, Portugal, Denmark, France, Lithuania and Finland were the only ones able to maintain or strengthen growth rates in the second quarter (of 2019). Portuguese exports to Germany and Italy remain at a reasonable pace despite the rampant anaemia in these countries – something that hasn’t happened in other reference markets”.
Needless to say, Germany remains Portugal’s third largest export market, so the writing is on the wall.
Last week, the Bundesbank – Germany’s central bank – warned the country’s economy “is probably set to remain lacklustre in the third quarter of 2019” and, with that, alarm bells started ringing throughout the continent, and beyond.
But FT commentators really do appear to believe that Portugal has the chance to sidestep the worst.
To do so, however, our ‘canny’ (FT’s description) prime minister António Costa must “continue down the now proven path of fiscal prudence, but without punitive austerity”; he must “carry out deeper reforms of the country’s outdated public administration” and get to work on further reforms within the banking sector.
“As storm clouds gather over the world economy, Portugal must have a clearer vision for its future direction and economic strategies,” says the paper – coincidentally just as Costa’s PS Socialist ‘team’ is setting out on its election trail ahead of October 6’s polling date.
Much has been said about the ‘complicated’ alliance with far-left parties that has kept the Socialists in business since 2015 – indeed papers suggest the party is gunning for an absolute majority. The FT hints Costa may just clinch it – and that he has “more reason to be optimistic than many other European leaders”. Given the situations in other member states, however, this may not be saying much.
As for the canny Mr Costa, who has seen national media have a field day with the FT’s text, he insists there is indeed a lot of work still to do.
“To continue on this internationally-recognised path of convergence, we have to keep working, make the right investments and create the right policies for more and better employment and growth so that this country sees less inequality,” he told reporters on Monday.
FT’s praise leaves bitter after-taste
Of course, not everyone agrees with the Financial Times’ assessment.
Economist and university lecturer João Duque – who formerly advised Costa’s centre-right predecessor Pedro Passos Coelho – suggests PS Socialists are only riding high because they continued with austerity – which caused the downfall of the last government – but managed to hoodwink the electorate into thinking it was over.
“We had two periods of austerity,” Duque told Rádio Renascença on Monday. “One where austerity was called austerity and one where it wasn’t…”
In Duque’s viewpoint, if the centre-right’s painful measures had not been pushed through – causing a veritable exodus of young talent – the situation today would be very different.
“The fact that we don’t have many unemployed has come because many Portuguese are employed abroad. If the 400,000 to 500,000 who left were here now, levels would not be at 6.7%,” he stressed.
Meantime, investment in public services “hasn’t really improved”, he added.
Perhaps a middle ground can be found in the Luso-German chamber of commerce whose executive director Hans-Joachim Böhmer told Jornal i this week that, yes, a recession in Germany will affect Portugal “but only in a small way” – again, in his opinion.
Said Böhmer, no matter how bad the economy is, Germans are unlikely to stop going on holiday – meaning tourism in Portugal should not be affected.
German manufacturers, also, “value their employees a great deal”, particularly when they’re skilled. Thus, car plants like Autoeuropa – in his mindset – will not be laying off staff, though personnel may face the prospect of ‘transfers’.
He told Jornal i: “I do not see a decline in investment or employment in Portugal”, nor does he imagine a “reversal of investment”.
On the wider sphere, international economist Nouriel Roubini has been explaining what he sees ahead for 2020, suggesting the looming global recession will centre on what he calls “three negative supply shocks” – two of which involve China, and all of which involve America.
Along with President Trump’s trade war with China, there is the feud over technology and a very real possibility of issues over oil due to President Trump’s worsening relations with Iran.
In Roubini’s opinion, a new recession will differ from the one over a decade ago in as much as ‘never-ending monetary and fiscal stimulus’ packages “will not be a sensible option”.
We can only hunker down and hope pundits at the FT have it right …
Photo: Prime minister António Costa during a visit to São Brás de Alportel on August 25