Portugal: the country is experiencing a surprising economic recovery

29 September 2017

With a policy that is nevertheless opposed to the demands of the European Commission, Portugal has almost no budget deficit, has lowered its unemployment and even enjoyed one of the best growth in the euro area.

While it has recently experienced fierce fires, Portugal has a positive rating.

A COUNTRY ON THE EDGE OF THE GOUFRE

In 2014, the country is hit hard by the eurozone debt crisis, which forced it to call for an international aid plan in Brussels. The country had gone through three years of recession before returning to growth in 2014.

A year ago, in July 2016, the European Commission initiated an "excessive deficit" procedure against the government of Lisbon. Portugal risked a fine, according to Brussels, since it was supposed to reduce its deficit to 2.5% of its GDP in 2015 instead of the 4.4% announced. To this end, the European Commission called on the country to reduce its deficits by reducing public spending, structural reforms of labor aimed at "relaxing" the rights of employees, or by lowering social protections. Yet, for the last year and a half, the opposite situation has been practiced by Portugal. A situation that seems to have irritated Brussels in the spring of 2016, during the announcements of Lisbon.

A SOCIALIST GOVERNMENT IN THE POWER

Since November 2015, a socialist government is in power in the country. The latter decided to practice a policy contrary to the previous government, right. Indeed, the right had frozen the minimum wage and pensions, increased taxes, and reduced public subsidies. This had not helped to reduce the budget deficit or unemployment significantly, but had eroded precariousness and poverty in the country. While the current government's economic and social choices have focused on a clearly anti-austerity and antinomic policy.

Indeed, the Prime Minister, António Costa, has been implementing reforms that had been declared in his coalition program for two years. Reforms assumed contrary to the previous government:

The austerity policy pursued in recent years has resulted in an unprecedented increase in unemployment with devastating social effects on young people and the least qualified citizens, as well as families and thousands of unemployed Portuguese. It has also been associated with a devaluation of the dignity of work and the rights of workers

A BOOM ASSISTED BY TOURISM AND REAL ESTATE

This new policy has not translated the increase of the Portuguese minimum wage from 505 to 557 €. Then economic measures but also a revival of purchasing power were taken. The State has decided to increase pensions and family allowances, lower taxes for the most modest wage earners, or even halt the privatization of public services and infrastructure, a program to combat precariousness. From a purely economic point of view, the Portuguese strategy has therefore not been in line with the Commission's requests and has nevertheless paid off. The government believes that the increase in revenues has been in favor of the Portuguese. Indeed, it has given confidence to investors, companies, and internal demand has increased.

In fact, Portugal's economic growth surpassed all expectations in the first quarter of 2017, an upturn driven by the boom in tourism and real estate.

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