By: Chris Graeme
INCREASED TAXATION, salary freezes, unemployment, lack of competitiveness and private household indebtedness are squeezing the Portuguese employee to the limit. According to the latest bi-annual economics report on Portugal from the European Commission, Portuguese purchasing power has suffered its lowest increase since the mid eighties.
Purchasing power for the average employee working for a company has dropped by 7.9 per cent since 1998 and 0.9 per cent in 2006. Overall, however, Portugal’s entry into the EU financial markets in 1999 has seen purchasing power increase by seven per cent. The problem is that Portugal’s falling competitiveness, high taxation and consumer debt mean that purchasing power in other EU countries is rising at a higher rate.
In 1984, purchasing power was low because Portugal was hit by a severe economic crisis fuelled by runaway inflation at 25 per cent. Salaries in real terms plummeted by 5.6 per cent that year alone.
In 2006, nominal salaries rose by 2.4 per cent, down by five percentage points from 2.9 per cent in 2005. In 2007, Brussels predicts salaries in real terms will rise in Portugal by a moderate 0.4 per cent, climbing to 0.5 per cent in 2008. Despite moderate salary gains, Portuguese competitiveness against its other European partners in terms of costs is likely to remain one of the lowest in Europe.
By 2008, Portugal will have registered poor export figures compared to other EU countries for the fifth year running, despite moderate signs of increases in 2006 in some export areas. The results are surprising given that foreign sales are currently driving what little economic growth (1.8 per cent) there is in Portugal. It means that Portugal is still having difficulties in placing its goods in its target markets abroad compared to its main competitors.
According to the Commission, success is not just measured by increases in physical exports abroad but how the country gains financially as a whole and whether it maintains or loses market quotas to other foreign competitors in its key target markets.
If companies have to slash their prices to sell and remain competitive against other countries where manpower and production are cheaper, the net effect in real economic terms may still be negative or negligible.
This export economic indicator has shown a negative economic trend since 2004, with an all time low in 2005 when the export market fell by 5.1 per cent in value. In 2006, the export situation improved (8.8 per cent), but not sufficiently enough for the EU Commission’s exports development indicator for Portugal to climb back into the black. This was because, despite growth, other EU country export markets grew even more, such as Germany, Finland, the Czech Republic and Poland, all showing export growths at 10 per cent or more.
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