Presentation to the 2019 OECD Economic Survey of Portugal

2019 OECD ECONOMIC SURVEY OF PORTUGAL Promoting convergence and wellbeing Lisbon, 18 February 2019 http://www.oecd.org/economy/surveys/portugal-economic-snapshot

@OECDeconomy @OECD

Key messages

• Further progress in improving public finances, reducing private debt and the health of the banking system can improve resilience to shocks • Export performance can be enhanced through policies that better enable exporters to innovate and grow

• The efficiency of the judicial system can be further improved, thereby spurring economic activity

2

Economic recovery is well entrenched but further improvements in wellbeing are needed

3

The economy is growing after a double dip recession Real GDP y-o-y % changes

y-o-y % changes

4

4

3

3

2

2

1

1

0

0

-1

-1

-2

-2

-3

-3

-4

-4

-5

2007

2009

2011

2013

2015

2017

2019

-5

Source: OECD Economic Outlook.

4

Unemployment has continued to decline Unemployment rate

Percentage

Percentage

18

18

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

2007

2009

2011

2013

2015

2017

2019

0

Source: OECD Economic Outlook.

5

Domestic demand is now also driving the recovery Annual percentage change 15

Exports

15

Domestic demand

10

10

5

5

0

0

-5

-5

-10

-10

-15

2007

2009

2011

2013

2015

2017

-15

Source: OECD Economic Outlook.

6

The economic expansion will continue

% change

2018

2019

2020

Gross domestic product (GDP) Private consumption

2.1

2.1

1.9

2.2

1.8

2.0

Government consumption Gross fixed capital formation

0.7

-0.1

-0.1

4.5

5.6

4.7

Exports of goods and services Imports of goods and services

6.0

4.5

3.7

6.2 7.1

4.7 6.4

4.2 5.7

1.3

1.3

1.4

Unemployment rate Consumer price index Source: OECD

7

Convergence has been limited GDP per capita, percentage of OECD average

Source: OECD Compendium of Productivity Indicators 8

Wellbeing can be improved OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017 20% top performers

60% middle performers

20% bottom performers

Portugal

11 16

18

20 24

Environmental Personal qualit y security

Housing

Work-lif e balance

28

30

Income and Social Health status wealth connections

31

32

33

Jobs and Educatio n and Civic earnings skills engagement

35

Subje ctive well-being

Source: OECD (2017), OECD Better Life Index

9

Encouraging fiscal sustainability and green growth

10

The public debt ratio is falling, but remains high Gross government debt as a percentage of GDP % of GDP

% of GDP

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

0

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

11

Ageing costs will impact public debt General government debt as a percentage of GDP

160 140 120 100 80 60

Continued consolidation effort

40

Continued consolidation effort and not offsetting increase in age-related costs Weakening consolidation effort

20 0 2000

Weakening consolidation effort and not offsetting ageing-related costs 2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

Source: OECD, European Commissions, calculations by the OECD Secretariat.

12

There are too many VAT exemptions and reduced rates VAT Revenue Ratio

Note: The VAT Revenue Ratio is the ratio between the actual value-added tax revenue collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption.

Source: OECD. 13

Public transport is used much less than in other EU countries

95 90 85 80 75 70 65 60 55 50

LTU PRT NOR ISL GBR SVN NLD DEU SWE LUX EU FIN GRC ITA BEL DNK ESP FRA LVA EST IRL POL AUT SVK CHE CZE TUR HUN

Percentage of individual car use in total passenger transport, 2016

95 90 85 80 75 70 65 60 55 50

Source: Eurostat.

14

Recommendations to improve fiscal sustainability and make growth greener • Continue gradual fiscal consolidation.

• Raise taxes on diesel fuel, and increase energy taxes on coal and natural gas.

• Encourage public transport use and the development of new shared transport solutions.

15

Improving financial stability

16

Bank profitability has improved, but remains low Return on Equity (%) 20

2018 Q3

18

20

2016 Q3

18

HUN

CZE

LVA

LTU

SWE

-4

SVK

-4

SVN

-2 NOR

-2 AUT

0

EST

0

POL

2

NLD

2

ESP

4

LUX

4

DNK

6

IRL

6

EU

8

FRA

8

BEL

10

GBR

10

ISL

12

ITA

12

PRT

14

FIN

14

DEU

16

GRC

16

Source: European Banking Authority (EBA), “EBA Risk Dashboard” 17

Nonperforming loans remain elevated, despite improvements Non-performing loans as a ratio of total outstanding loans, 2018 Q3 20

43

20

LUX

SWE

FIN

GBR

CZE

EST

NOR

0

DEU

0

NLD

2 BEL

2 DNK

4

ISL

4

LTU

6

FRA

6

SVK

8

AUT

8

LVA

10

EU

10

ESP

12

POL

12

IRL

14

HUN

14

SVN

16

ITA

16

PRT

18

GRC

18

Source: European Banking Authority (EBA), “EBA Risk Dashboard”.

18

Personal bankruptcy law is relatively stringent OECD insolvency indicator: Treatment of failed entrepreneurs, 2016 1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0

0.0

CAN TUR USA AUS CHL GBR JPN AUT CHE DNK ESP FIN FRA GRC IRL ITA LVA MEX NOR NZL SVK SVN BEL DEU EST HUN ISR KOR NLD PRT SWE CZE

1.0

Source: Adapted from Adalet McGowan et al. (2017).

19

Court proceedings for credit claims can be long

70

70 Total

Credit claim

60

60

50

50

40

40

30

30

20

20

10

10

0

less than 1 year

1 to 2 years

2 to 5 years

more than 5 years

0

Source: Ministry of Justice.

20

Recommendations to improve financial stability • Continue to monitor NPL reduction plans, translating performance in achieving targets into capital requirements.

• Make bankruptcy a viable solution for heavily indebted individuals, reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy proceedings.

• Introduce an out-of-court mechanism to facilitate the liquidation of non-viable firms.

21

Further raising export performance

22

The improvement in export performance has been impressive Export performance, Index 2007=100 140

140 Portugal

130

Germany

Italy

Spain

Hungary

130

120

120

110

110

100

100

90

90

80

80

70

70

60

2007

2009

2011

2013

2015

2017

60

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

23

20 18 16 14 12 10 8 6 4 2 0

Source: Bank of Portugal, calculations by the OECD Secretariat.

Travel and tourism

Minerals and metals

Chemicals, rubbers

Machines

Agri-food

Transport material

Services

Transportation

Other services

Hides, leather and textiles

Other manufacturing

Wood, cork and paper

Clothing and footwear

Telecomm. and IT

Construction

Personal, cultural and rec.

Intellectual property use

Insurance and pension

Financial services

Tourism has been booming Percentage contribution to total export growth over the 2009-17 period

Goods

20 18 16 14 12 10 8 6 4 2 0

24

The economy can still be more outward oriented % of GDP 120

120 FDI stock

Exports

100

100

80

80

60

60

40

40

20

20

0

PRT

Source: OECD.

HUN

CZE

BEL

0

25

Most firms are too small to be significant exporters Share of firms with more than 10 employees %

%

Source: Eurostat.

LUX

DEU

DNK

AUT

GBR

NOR

LTU

EST

0

IRL

0

LVA

2

FIN

2

ISL

4

HUN

4

NLD

6

SWE

6

SVN

8

POL

8

PRT

10

BEL

10

FRA

12

ITA

12

ESP

14

CZE

14

GRC

16

SVK

16

26

It takes too long to prepare and pay taxes Time to prepare and pay taxes, 2018 Hours

Hours 300

250

250

200

200

150

150

100

100

50

50

0

0

EST LUX CHE NOR IRL FIN LTU AUS GBR NLD SWE JPN AUT CAN DNK BEL FRA ISL NZL ESP OECD LVA TUR USA KOR SVK GRC DEU CZE SVN ITA ISR MEX PRT COL HUN CHL

300

Source: World Bank Doing Business Indicators.

27

Logistics infrastructure can be improved Ranking for logistics infrastructure

Worse

Better

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

PRT

HUN

CZE

ESP

ITA

BEL

FRA

DEU

0

Source: World Bank Doing Business Indicators.

28

Improving workers skills is key for raising competitiveness Percentage of individuals that have completed education 60

60 EU

Portugal

50

50

40

40

30

30

20

20

10

10

0

15-24

25-34

35-44

45-54

55-64

Upper secondary and post-secondary education Source: Eurostat.

15-24

25-34

35-44

45-54

55-64

0

Tertiary education 29

Recommendations for further promoting export performance • Simplify the tax system by reducing the use of special provisions and ambiguity in tax language.

• Ensure that port concession contracts specify a minimum level of investment by the operator and do not renew concessions without opening a new public tender.

• In awarding port concessions, take into account the price that bidders will charge port users.

• Target lifelong learning opportunities to the low-skilled, including by collecting information on the private returns to skills and making it publicly available.

30

Enhancing judicial efficiency to foster economic activity

31

Court proceedings are shorter than before, but still long Average time needed to resolve civil and commercial cases, first instance courts, in days

Source: Council of Europe European Commission for the efficiency of justice (CEPEJ) 32

The average time to pay is long in Portugal, partly reflecting weak contract enforcement The average time actually taken to pay, Business to business, in days.

Source: Intrum (2018), “European Payment Reports 2018�.

33

Loan forbearance is common, while collateral enforcement is difficult The forbearance loans ratio as a percentage of total outstanding loans in the corporate sector, Q2 2018 25

25

20

20

15

15

10

10

5

5

0

GRC PRT SVN IRL ITA ESP ISL NOR HUN POL EU DEU NLD AUT DNK BEL GBR SWE FRA FIN EST LUX

0

Source: EBA, “Risk Assessment Report” December 2018.

34

Recent reforms reduced pending proceedings, but court congestion remains significant Number of initiated, terminated and pending proceedings per judge 1200

Initiated

Terminated

1200

Pending

1000

1000

800

800

600

600

400

400

200

200

0

2000

2002

2004

2006

2008

2010

2012

2014

2016

0

Source: Pordata.

35

Significant bottlenecks remain in some courts Civil cases, 2017 0.6

Resolution rate (LHS)

cases in stock/number of judges (ratio, RHS)

1800

0.5

1500

0.4

1200

0.3

900

0.2

600

0.1

300

0

0

How to read this chart: Court efficiency (measured by “Resolution rate� which is the number of resolved cases divided by the cases in stock) tends to be low where court resources are relatively scarce.

Source: Ministry of Justice and High Council for the Judiciary.

36

Regulation in the legal professions is too strict OECD Indicators of regulation in the legal services sector

Source: OECD Product Market Regulations Statistics (database).

37

Alternative dispute resolution mechanisms can be developed further thousands 14

Number of proceedings in “Justice of peace courts� vs. in the court system.

thousands 1400

incoming cases, justice of peace courts (LHS) pending cases, justice of peace courts (LHS)

12

1200

incoming cases, court system (RHS) 10

1000

8

800

6

600

4

400

2

200

0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

Source: INE. 38

Recommendations for enhancing the judiciary to foster economic activity • Increase the managerial autonomy of the courts so that they can effectively allocate resources.

• Fully analyse the data collected from the information system on court proceedings (CITIUS) so that it allows the courts to identify problematic cases and those that should be prioritised.

• Set up an independent supervisory body to ensure that regulations in the legal profession are in the public interest.

• Continue to enhance the capacity of the Public Prosecution Office to address economic and financial crime. Public prosecutors should continue to undertake specialised training in this area.

• Establish an electronic registry of interests for all government members and senior civil servants that is regularly updated.

39

Improving labour utilisation and further reducing poverty

40

The incidence of long-term unemployment is still quite high As a percentage of total labour force, 2018 Q3 21

Unemployment rate

21

of which, long-term unemployment

ISL

CZE

DEU

NLD

POL

HUN

NOR

GBR

CHE

AUT

DNK

SVN

EST

LTU

0

BEL

0

IRL

3

SWE

3

LUX

6

SVK

6

FIN

9

PRT

9

LVA

12

FRA

12

ITA

15

TUR

15

ESP

18

GRC

18

Source: Eurostat Labour Force Survey database.

41

Low-skilled people face significant employment barriers Percentage of those unemployed or with weak labour market attachment facing each employment barrier 80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

Lack of skills

Scarce job Health limitations "High" non-labour "Low" relative opportunities income work experience (regress)

Source: OECD (2018), “Faces of joblessness in Portugal�.

No past work experience

"High" earnings "High" care replacements responsabilities

0

42

Recommendations for improving labour utilisation and reducing poverty • Avoid across-the-board rises in hiring subsides, limiting them to those at high risk of long-term unemployment and those at risk of poverty.

• Expand well-designed vocational training programmes (i.e.

“Aprendizagem” and “Cursos de Educação e Formação de Adultos”), so that they reach more of the low-skilled population.

• Consolidate the two vocational education systems into a single dual VET system with strong workplace training and perform a thorough evaluation of all vocational training.

43

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/economy/surveys/portugal-economic-snapshot

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