OECD Economic Surveys: Portugal 2017
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OECD Economic Surveys: Portugal 2017

Portugal’s economy has gone through a gradual recovery from a deep recession. A wide-ranging structural reform agenda has supported the recovery and the ongoing reduction of imbalances built up in the past. Raising investment will underpin the ongoing rebalancing of the economy and a stronger export sector. Incentives for new capital investments could be strengthened by improvements in judicial efficiency, administrative reform, product market regulation reforms or lower labour costs. Removing non-performing loans from bank balance sheets would enhance banks’ ability to provide new credit to firms. Addressing bottlenecks in insolvency procedures and opening up new sources of financing would also boost private sector investment. Overcoming a legacy of a low skilled labour force is key for higher living standards. Despite remarkable progress, the education system could do more to raise skill levels and reduce the link between learning outcomes and socio-economic backgrounds. The high share of early school drop-outs and frequent use grade repetition could be reduced by shifting resources towards primary education and students at risk and improving teacher training and exposure to best practices. Unifying the current fragmented Vocational Education and Training (VET) system into one dual VET system, and strengthening monitoring and evaluation could raise its effectiveness to meet the labour market needs and ability to contribute to a more skilled society. Efforts need to continue to raise the skills levels of the low-qualified adult population.


SPECIAL FEATURES: RAISING INVESTMENT; RAISING SKILLS

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Raising business investment You do not have access to this content

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In the context of a strong recession from which the economy only emerged in 2014, total investment in Portugal has been low, reducing the economy’s growth potential. Without stronger investment, growth performance is bound to decline over the next years, but raising investment also matters for wage and productivity developments. Low investment is related to both financing constraints and a lack of competitiveness. Many Portuguese corporates are heavily indebted and are facing strong deleveraging needs, which places strong limits on their capacity to invest, while banks’ lending capacity may be curtailed by large amounts of non-performing loans. The regulatory stance could be used to strengthen incentives for banks to resolve long-standing NPLs, in combination with public support for banks’ efforts to offload legacy loans from their balance sheets. The costs of doing so could be reduced by improvements in insolvency rules which are vital for the recovery values of collateral. Stronger investment incentives could result from a better business climate, possibly as a result of further efforts to simplify dealing with the licenses, the public administration and the judicial system. Reducing entry restrictions in professional services would be one way to improve access to non-tradable inputs, which affect the competitiveness of Portuguese firms, as would be further efforts to reduce rents in the electricity sector or stronger competition in the ports sector. Implicit barriers to the entry of new firms, which often turn out to invest strongly as they grow, could be reduced through reforms in wage bargaining mechanisms and changes in the support measures for research and development.

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