OECD ECONOMIC SURVEYOF PORTUGAL 2017

6 February 2017, Lisbon

http://www.oecd.org/eco/surveys/economic-survey-portugal.htm

Boosting growth and well-being

2

The economy is recovering

Source: Calculations based on OECD Economic Outlook: Statistics and Projections (database).

145150155160165170175180185

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

billion EUR

Real GDP

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

ExportsImportsExports and Imports

Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).

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).

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201560

70

80

90

100

110

120

Export performance Index 2000 = 100

Portugal Germany Italy Spain

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

SOME VULNERABILITIES REMAIN

7

General government debt, Maastricht definition, per cent of GDP

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

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

Private sector debt1% of GDP

Non-financial corporations Households

9

The banking sector remains fragile

KOR

PRT

ITA

ESP

USA

JPN

MEX TU

R

HUN

FRA

GBR PO

L

DEU

CHE

BEL

OEC

D

CZE

SVK

NLD

GRC IR

L

SWE

0

5

10

15

20

25

30

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

NPLs as a percentage of total gross loans, Q2 2016

Non-performing loans are high

Source: IMF (2016), Financial Soundness Indicators (FSI Database), International Monetary Fund.

KOR

CHE

GBR

SWE

USA

JPN

DEU

MEX NL

D

TUR

BEL

FRA

POL

SVK

CZE

OEC

D

ESP

HUN

PRT

IRL

ITA

GRC

0

2

4

6

8

10

12

14

16

18

20

22 37

11

Share of non-performing loans, per cent

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

Non-financial corporations Housing Consumption

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

PortugalSpainItalyEuro area¹

1. Euro area countries that are also OECD members (including Latvia).Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).

13

Firms aged 0-2 years-old, as a % of all firms, latest data

Start-up rates are low FI

N

NOR

AUT

DNK

ITA

ESP

CHL

AUS

PRT

LUX

BEL

SWE

HUN

NZL

USA

NLD

GBR TU

R

0

2

4

6

8

10

12

14

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

Young firms contribute more to productivity growth

Labour productivity growth Total factor productivity growth -4

-2

0

2

4

6

8

10

12

-4

-2

0

2

4

6

8

10

12

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

Access to financing is the biggest obstacle to investment

FIN SVK NLD DEU AUT FRA BEL EA ESP IRL ITA PRT GRC0

1

2

3

4

5

6

7

8Index scale 1-10

Source: ECB (2016), “Survey on the access to finance of enterprises (SAFE)”, Statistical Data Warehouse, European Central Bank.

16

Sources of investment financing for Portuguese SMEs, Per cent of firms, first semester of 20161

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.

Other sources

Grants/subsidised bank loan

Internal funds

Other loans

Factoring

Leasing or hire-purchase

Bank loan

0 2 4 6 8 10 12 14 16 18 20

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.

DN

K

EST

AU

T

POL

HU

N

NLD

SVN

FIN

SWE

CZE

LVA

SVK

ESP

FRA

ITA

PRT

0

200

400

600

800

1000

1200

2010 2014

Days needed to resolve civil, commercial, administrative and other cases First instance (days)

18

Years required to resolve an insolvency case, 2015

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.

IRL

JPN

CAN

SVN

BEL

FIN

NOR

AUS

DNK

ISL

GBR

AUT

NLD

DEU

NZL

KOR

ESP

USA

OEC

DIT

AM

EX FRA

PRT

HUN

ISR

LUX

SWE

CZE

EST

POL

CHE

CHL

GRC

SVK

TUR

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

A. Years required to resolve an insolvency case 2015

19

Index scale of 0-6 from least to most restrictive, latest data

Barriers to competition in transport sectors are high

Source: OECD (2016), OECD Product Market Regulation Statistics (database).

GBR DE

U

SVK

CHE

HUN

SWE

JPN

NLD

BEL

ESP

OEC

D

CHL

ITA

IRL

CZE

MEX

GRC PO

L

KOR

FRA

PRT

TUR

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Air Road Rail

20

EUR per thousand kilowatt hours paid by medium sized industrial consumers, 2015

Electricity prices are high, hampering competitiveness

Source: Eurostat (2016), “Electricity prices by type of user”, Tables by Themes.

RAISING SKILLS

22

Gap with respect to the United States, per cent, 20141

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).

MEX CH

LPO

LKO

RTU

RES

THU

NPR

TCZ

EG

RC ISR

SVK

SVN

JPN

NZL

ISL

OCD

EG

BR UE ESP

ITA

CAN

FIN

AUS

SWE

AUT

CHE

DNK

DEU

FRA

IRL

NLD

BEL

NOR

LUX

-80

-60

-40

-20

0

20

40

-80

-60

-40

-20

0

20

40

23

Percentage of working age population having attained at least upper secondary education, 20151

Improving skills is key

1. Working age population: 25-64 years-olds.Source: OECD (2016), Education at a Glance 2016: OECD Indicators.

CZE

SVK

EST

POL

CAN

USA

CHE

LVA

FIN

DEU

SVN

KOR

ISR

AUT

HUN

NOR

SWE

DNK

IRL

GBRAU

S

FRA

OEC

D

NLD

NZL

ISL

BEL

LUX

GRCCH

L

ITA

ESP

PRT

TUR

MEX

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

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

2000 2003 2006 2009 2012 2015465

470

475

480

485

490

495

500

505

465

470

475

480

485

490

495

500

505

Portugal OECD average

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

Early school leaving rate is high

Source: Eurostat (2016), "Youth education and training", Eurostat Database.

ESP

ISL

ITA

PRT

HUN

EST EU

GBR

NOR

BEL

DEU

FRA

LUX

FIN

NLD

GRC DN

K

AUT

SWE

IRL

SVK

CZE

POL

CHE

SVN

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

26

Grade repetition is too commonly usedES

P

PRT

BEL

NLD

DEU

ITA

USA

OEC

D

AUT

CAN

AUS

ISR

EST

POL

NZL

SWE

DNK

CZE

SVK

FIN

GBR SV

N

ISL

JPN

KOR

NOR

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

% 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

Inequities in the education system persist

2006 2015 2009 2012Science Reading Mathematics

0

5

10

15

20

25

30

35

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

Upper-secondary vocational education and training enrolment rates, 2014

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.

CZE

FIN

AUT

SVK

NLD

SVN

CHE

LUX

BEL

ITA

NOR

AUS

POL

DEU

TUR

PRT

OCD

ESW

EG

BR FRA

DNK

ISR

LVA

MEX ES

TES

PNZ

LG

RC ISL

CHL

HUN

JPN

KOR

CAN

IRL

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

29

Professional management is insufficiently usedGlobal competitiveness index ranging from 0 (non-professional) to 7 (professional

management), 2014-151

Managerial skills remain low

Source: World Economic Forum (2015), The Global Competitiveness Index Historical Dataset 2006‑2015.

ITA

HUN

GRC SV

NPR

TTU

RM

EX POL

SVK

ESP

CHL

LVA

KOR

ISR

FRA

CZE

OEC

DES

TAU

TIS

LJP

NLU

XDE

UAU

SCA

NG

BR BEL

SWE

USA

DNK

IRL

CHE

NLD

FIN

NOR

NZL

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

30

% of GDP, latest data

R&D expenditures are low

Source: OECD, Main Science and Technology Indicators database.

CHL

MEX

GRC

SVK

POL

TUR

NZL

ESP

LUX

PRT

ITA

HUN

EST

IRL

CAN

GBR

NOR

ISL

CZE

NLD

AUS

FRA

OECD SV

NBE

LUS

ADE

UCH

EDN

KAU

TSW

EFI

NJP

NIS

RKO

R

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

31

As a percentage of product and/or process-innovating small and medium sized enterprises (SMEs), 2010‑12

Cooperation between SMEs and research institutions is low

Source: OECD (2015), OECD Science, Technology and Industry Scoreboard 2015: Innovation for growth and society.

CHL ITA TUR LVA PRT ISR POL SVK FRA NLD ESP DNK CZE EST KOR DEU NOR HUNSWEGBR JPN BEL GRC AUT FIN SVN0

5

10

15

20

25

30

0

5

10

15

20

25

30

MAIN RECOMMENDATIONS

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.

Macroeconomic Policies

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.

Recommendations to reduce NPLs and the corporate debt overhang

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.

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.