Updated stability programme of Portugal, 2007-2011 - Main contents

EN

Official Journal of the European Union

C 73/6

On 4 March 2008, the Council examined the updated stability programme of Portugal, which covers the period 2007 to 2011.

From a phase of high economic growth in the second half of the nineties, the Portuguese economy moved to a situation of sluggish GDP growth after 2000, accompanied by rising unemployment, which all added to budgetary fragilities. This marked change in economic performance was rooted in the accumulation of large external and budgetary deficits, with pro-cyclical fiscal policies compounding the imbalances of the private sector and feeding uncertainty.

At the beginning of this decade, private domestic demand moderated considerably reflecting the adjustment of spending to levels more in line with income patterns. At the same time, public primary expenditure had to slow down from previous unsustainable trends, while the competitive position has remained vulnerable reflecting a lasting misalignment between wages and productivity growth. Whereas recent economic growth has been led by the external sector, accompanied by considerable restructuring in some industries in the face of increased external competition, weaknesses of a more structural nature stand in the way of a lasting improvement in economic performance. In particular, overall productivity is low, mainly due to relatively low levels of human capital, and the efficiency and effectiveness of the public sector needs particular attention. In recent years, significant progress has been achieved to overcome this situation, in particular in containing public finances imbalances. In all, continuing fiscal consolidation, improving the quality of public finances, and proceeding with structural reforms with a view to improving potential GDP growth remain major challenges to put back the Portuguese economy on a sustainable and dynamic catching-up path.

The macroeconomic scenario underlying the programme envisages a continuation of the upswing in economic activity, with real GDP growth picking up from 1,8 % in 2007 to 2,2 % in 2008 and further to 2,8 % in 2009 and 3 % in 2010 and 2011. Assessed against currently available information (2), the economic outlook after 2008 appears to be based on favourable growth assumptions. In particular, growth rates for private demand components seem to be on the high side, especially for investment. The programme expects the labour market to improve gradually over the programme period, but the employment outlook appears optimistic.

The projections for consumer inflation may be on the low side in the light of the recent surge in food and oil prices in world markets. The economy's competitiveness position is expected to improve in the coming years, with unit labour costs growing more slowly than in most of its trading partners. The programme envisages a marked decline of the sizable external deficit, from 8,8 % of GDP in 2006 and an estimated 7 % of GDP in 2007 to 4,7 % of GDP in 2011. Assessed against current information, however, the underlying improvement of the deficit in the balance of current transfers and primary income projected in the update might be difficult to achieve.

For 2007, the general government deficit is estimated at 3 % of GDP in the...