Fernando Medina has reason to smile. “The end of the year with no recession, no downturn in the economy, means we will have more capacity to meet the 2023 targets,” the finance minister said after the INE figures were released. that the GDP of 2022 has had the highest growth in the past 35 years, one of the twelve known euro countries that have grown the most (after Ireland). And the reasons to make Medina happy are not limited to the confirmation of 6.7% growth over the past year – in December the government revised upwards the forecast of 6.5 in the state budget (OE), pointing at a value that is one point higher than the one you end the year with. The perspectives of our key business partners also drive out the worst estimates. Even with European Union GDP stagnating, as Eurostat revealed yesterday, the eurozone still posted 0.1% progress in the fourth quarter, putting the looming recession behind it and bringing some particularly good news for Portugal, with Madrid grew at the same pace as Lisbon and Berlin managed to avoid a recession (the German economy surprised by being able to grow by 1.9% in 2022), despite the 0.2% decline in the latter part of the year.
Now that two of our economy’s engines are at work, Portugal can enjoy a certain relief, beyond historical growth and the fall in inflation for the third consecutive month: in a country heavily dependent on foreign and needs to strengthen exports, health of partners Europeans is a guarantee of improvement in this new year. Especially if we add Medina’s debt and deficit reduction trajectory to the picture, the proper bills that already earned praise from Moody’s, as DN/Dinheiro Vivo wrote a few days ago, and renewed confidence in performance of the economy.
“The stability of the Republic’s interest rate is very important,” admits tax specialist and former governor Carlos Lobo to DN/Dinheiro Vivo. “It means that the European policy of the ECB is working and that the markets believe in the country and in the fiscal effort that is being made.” There is also inflation, which has slowed for the third month in a row, settling at 8.3% in January, which could bring some relief to portfolios, but especially corporate treasuries, due to energy prices that are starting to slow down. The slowdown in inflation and the growth recorded in 2022 count, says the former secretary of state for tax affairs, with this “control of government accounts serving as a shield against future turmoil”.
So when you see the forest, the news is good. That brings cautious optimism to the discourse of economists and businessmen in this new year. “It is the portrait of a country that endures and proves the trajectory of the Portuguese economy in recent years,” said the tax official, pointing to tourism as an important pillar of this evolution. “Being peripheral and far from the war in Ukraine, we benefit more,” explains the former secretary of state, recalling that this condition has also favored industrial activity.
João Duque endorses the weight of tourism in the economy over the past year and adds the global panorama to the comparison made possible by the good Portuguese result – between Germany that resisted the crisis, thanks to energy savings and strengthening of shares, but also with new calm brought by the billion dollar investment of the United States in energy conversion. “On the other hand, Europe has not entered a recession – more good news – and China has revised its covid policies, unlocking consumption and orders.” All of this also contributes to alleviating inflation and instills confidence, which benefits Portugal. “And tourism may even be performing better than expected, which will push us even faster in 2023,” concludes Duque
“In the fourth quarter, the country grew at an annualized rate of 3.1% (slowing down from 4.9% in the third quarter) and 0.2% sequentially (0.4% in the previous quarter). With a GDP of 6.7%, the highest in 35 years.”
“I was already more pessimistic about 2023,” António Saraiva also confesses to DN/Dinheiro Vivo, identifying “signs that the worst fears will not come true.” The president of CIP justifies himself with “signs of improvement in Europe and a renewed dynamism of engines such as Spain and Germany”. And even the unemployment rate, which has risen slightly – 6.7% in the INE’s quick estimate, also released yesterday, up 0.2 points from November – is seeing nothing more than the effects of some seasonality. “What businessmen have signaled is rather the lack of manpower.” A problem that is also pointed out by the economist and the tax authorities, justified by the low wages, but also by the demographic issue and the ineffectiveness of promoting an immigration policy tailored to the needs of the country.
Right bills are worth a lot, investments are urgent
However, the blooming land loses brightness as we approach the trees. “The good year 2022 is confirmed,” admits João Duque, however, separating the “spectacular performance” of the economy in the first quarter from the visible slowdown that followed. “Since March, quarter after quarter, the economy has tended to stabilize, with the variation from the previous period getting smaller and smaller. We are landing,” the economist emphasizes, pointing to the lack of investment and the successive slowdowns in major infrastructures – with Lisbon airport and the railway in the foreground – as major concerns.
Spain has four mega factories contracted (battery factory for electric vehicles, including Volkswagen and Envision); Portugal will not have one, because no one will bet here without having the infrastructural conditions to sell the final product to the world,” he summarizes.
The same alarm is given by António Saraiva, who recalls the urgency for the government to start launching investments on the ground, namely what is left of PT 2020, the cake of the new multi-annual program and the Recovery and Resilience Plan, whose implementation horizon is already 2026. “There has been a blurring of these objectives with the internal agitation that we have seen in government and with the processes taking too long in public structures. And the result is visible in the very low implementation of the PRR” regrets the representative of entrepreneurs and underlines that so far only 160 million out of 1.6 billion have reached the economy. “There is an urgent need to launch these programs in the field and give companies this faster path.”
Carlos Lobo agrees: It is necessary to promote an investment-friendly climate. And adds. “We could make the economy perform much better if we made decisions faster and had much less bureaucratic ties to economic activity.” It is the eternally debated and never-resolved context costs that drive investors and their projects here. But also the professionals. “We rent out our best asset, the people,” complains João Duque, pointing above all to qualified, value-added personnel, who pursue working conditions that the national economy cannot provide. “Either they emigrate or they physically stay, but they only leave the VAT here, because they give up having their tax and work headquarters here.”
The salary issue: the Portuguese feel no improvement
This escape from the pink land is justified: the majority of Portuguese have no desire to live in the wonderland that historical growth and correct accounts depict. Inflation exacerbated an old problem “and the government cannot solve them all,” summarizes Carlos Lobo, recalling that the price increase that has stolen purchasing power has external factors beyond Portugal’s control, and effects beyond supermarket prices .
“It is the portrait of a country that endures and proves the trajectory of recent years,” said Carlos Lobo. “It was a good year, but we are landing,” warns João Duque.
“We have problems in the National Health Service, in education, in justice. And we can only apply palliative measures and send a signal with help to the most unprotected,” sums up the former government official, recalling the sectoral social struggles we experienced and recommend a stronger remedy. “We need to act on the level of effectiveness, simplification of processes, we need a Simplex 3.0. In order to improve people’s lives, it is essential that we stop taking incidental measures and start providing tailored responses to the bottom run, finding structural solutions to the problems of our economy,” defends Carlos Lobo.
The solutions are those that have long been indicated: attract investment, retain talent, cut bureaucracy, increase capital gains and productivity at work, raise wages to European levels, and finally let the effects of growth reach people. What our economy, even with the occasional spark, still cannot: “generate added value”, summarizes João Duque. If this barrier is not overcome, raising household incomes will remain a delayed goal in an increasingly tight labor market. “Companies that work in niches that allow them to raise their prices or that have an international presence to compensate for what they cannot recover here will be able to pay better salaries, at the European level; the rest, who cannot keep up, without people to to work,” says the economist, pointing to qualification and productivity as a way for families to regain the purchasing power they’ve lost over the years — and with particular violence in a 2022 of galloping inflation.
Otherwise, the loss of purchasing power will continue to widen the inequality gap between the living conditions of the Portuguese and the rest of Europeans. And to those who look from the inside and always from below, the forest will always look gloomy.