Portugal will grow more than 10 of the 11 eastern countries
The European Commission’s autumn pledges brought the idea that Romania could surpass Portugal’s GDP per capita by 2024 to the center of the national debate. However, when you look at the same forecasts, there is another piece of news hidden there: for the first time in many years, Portugal should have a three-year period in which it grows more than the average for eastern countries.
The Commission presented a forecast for 2022, 2023 and 2024. According to these, in these three years, Portugal will grow more than Bulgaria, Czechia, Croatia, Slovakia, Slovenia, Estonia, Hungary, Latvia, Lithuania and Poland. That is, it will grow above all eastern countries except Romania – see chart 1🇧🇷 Portugal may be overtaken by Romania in 2024, but it is also possible that it will exceed the GDP per capita of Poland and Hungary, already in 2023. Forecasts that must be made with reservation, at a time of so much celebration not only about GDP, but also on prices that satisfied the purchase power parity comparisons.
Since 2001, Portugal has generally grown less than the eastern countries. In most years it has grown less than each and every one of the eastern countries. But the growth gap has been narrowing – see chart 2🇧🇷 In the enlargement years (2002-2005), these countries had an annual growth between 4.5 and 5 percentage points (pp) above that of Portugal. Between 2005 and 2015, the difference was between 2.5 and 3 pp. Between 2015 and 2022, it was just one percentage point.
In the Commission’s forecasts for 2022 to 24, Portugal appears to grow between 0.5 and 1 pp above the forecast value for the eastern countries. Is it a turning point, or just an effect of the slowdown in growth caused by the war that can be reflected more strongly in the countries closest to the conflict? It’s hard to say. However, using the autumn forecast to conclude that Portugal is increasingly lagging behind the eastern countries, as some have done, is to extract these numbers exactly the opposite of what they say.
End of low growth cycle
Much has been written about the low growth cycle of the last 20, 25 or even 30 years. In this period there is evidence of: The) growth below the European average; B) close to zero; ç) less than 2% in most years; d) with consecutive years of negative growth. But where does the period of low growth begin and where does it end?
The evidence suggests that a period of low growth of 13 or 14 years can be delimited, starting in 2001 or 2002 and ending in 2015 or 2016, in which Portugal on average grew close to zero, in which it always grew below 2% and EU27 average – see chart 2🇧🇷 In the period before 2001 and not after 2015, these conditions are not met. Between 2001 and 2015 they occur in every year except 1.
Applying a mean comparison test, testing the probability that a three-year sample belongs to the sample of the 14 years prior to 2016, we obtain with a confidence level of more than 99% that the mean from 2016 to 2018 is significantly different. This is true for 2015-17 or 2017-19 as well. But if applied to all 3 years between 2001 and 2015, we never get the same validation.
This period of low growth spanned several governments, included external shocks such as the end of most EU trade barriers (end of the multifiber agreement and China in the WTO), EU enlargement, the international financial and sovereign debt crisis, and even an effort to rebalance public accounts and the balance of payments. These external and rebalancing factors help explain the low growth.
It is important to recognize that this period exists. Denying its existence corresponds to not assuming the problems faced by the Portuguese economy. But we say that we remain in the same situation, when in the last seven years the country recorded six with growth above 2% and grew more than the EU27 average, it means not accepting the positive evolution that the country has had, which evolved from the efforts of the society and different governments, in encouraging, in the innovation capacity, in the reinforcement of exports, in the attraction of investment, in the growth of technological companies and in several other aspects.
Innovation, exports and migrations
N/A Gathering for the 158 years of DN, last week, I had the pleasure of listening to António Horta Osório, the advocate that to accelerate the country’s growth we should pay particular attention to four areas: innovation, exports, competition and literature. I agree with Horta Osório that innovation, export capacity and promotion of competition are crucial for Portugal, with the size it has and the level of development it aspires to, to have sustained growth. I also agree that, in a context where the drop in birth rates, which happened 20 or 30 years ago, will continue to reflect on the decrease in the active population, the country must have a policy of attracting active and intelligent people.
That is why it is important to point out that in all these areas there are positive signs.
In innovation, the evolution of the number of patents, which almost tripled in less than a decade, the weight of spending on R&D in the GDP, which after retreating, had every year since 2015, and the evolution of technology companies, show an evolution interesting.
In exports, which had a period of stagnation before and at the beginning of the low growth cycle, they increased from 27% of GDP to 50% of GDP, between 2005 and 2022. At the end of 2022, they should be almost 70% above the value of 2015.
In terms of migration, the country managed to have a positive net entry balance over the last six years, after six years in which departures exceeded the entry of workers into Portugal.
In this sense, the growth that is taking place seems to be sustained by independent factors. It is also a balanced growth, having been achieved in a period in which, in general, a greater external and organic balance prevailed, than in the periods of growth of the 80s and 90s.
We can question whether these signs are strong enough to make the country grow according to our ambitions in the next decade. We know that it will not be able to prevent the deceleration of growth, which the war situation, increased advantage and interest rates will bring in 2023.
Recognizing these signs opens up hope that convergence can continue, even in an unfavorable context. In no case should we lead ourselves to say that everything is done, but rather to demand a strengthening of policies to support innovation, internationalization and the attraction of immigrants and retention of our young people, which together with other aspects that the country needs , such as increased investment, continued efforts to improve public services and administrative simplification, can help bolster economic growth.
Professor at the University of Minho.
Former Minister of Economy.