Portugal’s Performance after the Macroeconomic Adjustment Programme

Portugal experienced a deep economic and financial crisis that led to an EU/IMF programme from 2011 to 2014. Key indicators had been improving significantly since about 2013 and, at the outset of the COVID-19 outbreak in early 2020, the country had reached a much better position in which unemployment was low, there was a balanced government budget, government bonds had a stable investment rating and net immigration was positive. The developments after the end of the programme benefited, on the demand side, from a benign external economic environment, low interest rates and a boom in tourism. The economy’s capacity to take advantage of these factors was decisively improved, on the supply side, by structural reforms, spurred mainly by the implementation of the EU/IMF programme and previous action. The pursuit of structural reforms boosted the skill level and export orientation of the economy. Financial stability improved through the recapitalisation of the banking sector and by addressing non-performing loans. Fiscal consolidation continued throughout the post-programme period but was focused on the headline deficit with only limited structural improvement, mostly relying on historically low interest rates and subdued public investment. EU membership helped Portugal in overcoming the adjustment crisis with the single market, cohesion policy and the euro. European economic surveillance gave guidance and set a solid policy framework which also had positive signalling effects to financial markets. This paper does not address the impact of the COVID-19 pandemic and Portugal’s reaction to it. It rather aims to show how a country that had been under an adjustment programme recovered from a severe crisis and which structural challenges remain. Macroeconomic vulnerabilities due to decreasing but still high public and private debt, a lack of convergence to the EU average income, low productivity levels, and unfavourable demographic trends will influence how the country manages the green and digital transitions and copes with the COVID-19 crisis.