In the last ten years, the Portuguese economy has emerged from a difficult situation (another one in its recent history), from a tough economic and financial adjustment program (those of the troika and the PSD-CDS government) which, following the bankruptcy, was imposed In 2011, the PS government had been in power since 2005.
The austerity of the troika, as it was called, devalued income (wages and pensions were cut), impoverished the population who, the then government said, “lived above taxes, caused corporate failures and emigration, interrupted the birth rate, weakened public services (reflecting significant budget cuts).
But at the same time, the wave of sanitation resulted in a much cheaper and more attractive country in the eyes of capital and foreign investment, seeking less onerous context costs, lower wages, tax breaks, and good weather and pleasant people.
Public and private debt was also reduced, but was so high that it is still a concern.
The banks, which were part of the bankruptcy problem, have also organized, but the rating agencies continue to indicate that they are more vulnerable than some of their European peers – they could suffer (they and the country) if bad loans return.
It was at that time, at the end of austerity and with the country in an environment of sale, in 2013-2014, that tourism really exploded, that different real estate funds and investors started to take over city centers (Lisbon and Porto are an example of this). ), which began to exacerbate the housing crisis. A crisis against which the government has announced measures, but the end of which does not seem to be in sight.
Between 2015 and 2019, Portugal tried to recover. It was at this time that the discourse in favor of investing in innovation, knowledge and environmental friendliness gained momentum. Portugal has positioned itself to maximize the flow of European funds. For a devalued and undercapitalized country, this manna was essential, despite the delays.
In 2020, the world was hit by an unprecedented disruption: the covid-19 pandemic, which froze people’s activities and movement. The Portugal of explosive tourism, the new guarantee for job creation and historically low unemployment, had to wait again.
It was only this year that the pandemic was officially declared over, but in early 2022 the world (and in our case Europe) was still benefiting from the period of near-zero interest rates, negative in some cases, until the war between Russia and Ukraine.
The long period of zero interest rates (since 2016), which many warned would not last forever, was set to end in the middle of last year with the start of a very aggressive and rapid rate hike by central banks. Reason: the return of high inflation (it reached more than 10% in the Eurozone).
Despite the fact that inflation was largely imported in the first few months, the European Central Bank (ECB) does not intend to stop the rate tightening today. He says we are in a second phase of the inflationary crisis. High inflation took root in the economic fabric, drove the profits of many companies beyond what could be accounted for by the fundamentals alone and the reasonableness of the forecasts made at the time, and began to drive up wages as workers tried to maximize their purchasing power. not to lose. This broader and more widespread move is unacceptable to the ECB and difficult to monitor.
The poorest and most vulnerable workers have been supported by governments, but even this may be at stake because of the “need” for “certain bills”. The Stability Pact will come into full force again in 2024. If it is true that Portugal manages to run government deficits close to 0% of gross domestic product (GDP), the debt will remain well above the prohibitive 100%, while the main rule of the pact says that a maximum of 60% must be reached. are. %.
welcome to 2023
And this is where we are now, this is the state of the economy being debated in the State of the Nation. An economy (state and corporations) coming out of debt, with families still trying to get back much of what they lost during the troika. Problem: In the end, everyone got caught up in the curve because of the sharp rise in interest rates.
Today it is an economy that, at the beginning, still managed to turn inflation in its favor, grew much more than expected, supported by consumer billing companies (the case of food and energy is paradigmatic), tourism , but much less in the desirable investments in new things of knowledge, technology and green color, which according to politicians can guarantee new jobs in the future. European funds, the anchors of this new idea of progress, although they began to flow, were missing in 2022. There is a great delay to catch up, which even led to tensions between the government and the President of the Republic .
We are in July 2023 and the second phase of inflation, as the ECB says, is really the unprecedented tightening phase for households. The consensus of analysts and economists is clear: with more tightening, less confidence in the future and increasing uncertainties about job creation in the near future, the economy will suffer. That’s what it already is.
Government accounts, driven by the broad stream of tax and premium revenues in 2022 and early this year, will also soon become conditioned again. New efforts will be needed and new savings may be needed to keep the “correct accounting”, as Finance Minister Fernando Medina says.
For families, the “correct bills” are a different story. The installation of the house took a monumental leap. According to a study conducted by Dinheiro Vivo, the average new loan repayment for the purchase of a home will have increased by 50% or 60% in the past year to July, data from the National Institute of Statistics (INE) shows.
Today that debt to the bank is about 545 euros per month or more. In January that was 346 euros.
The average monthly interest on new home loans (calculated from Euribor) will now exceed 4%, quickly moving towards 5%. It is necessary to go back to the troika’s leading years (for example, 2012) to reach values of this caliber (4.7%).
The 95 liters of gasoline, another important asset for countless families, only dropped 4 cents compared to January 2022, when there was no war yet. In July, this final cost per liter was about 1.67 euros, according to Dinheiro Vivo accounts based on government data from the General Directorate of Energy and Geology (DGEG).
Economy and people hate
With all this, the economy is already suffering.
The second half of the year may look more unfavorable due to various environmental pressures: high inflation and rising interest rates, now contributing to a likely deterioration in credit availability due to greater turbulence in the financial system. he up. the Office of Economic Studies (NECEP) of the Catholic University of Portugal, coordinated by João Borges Assunção.
“Private consumption and investment seem to continue with a fragile and haphazard dynamic,” the economist concludes.
The most advanced indicators (anticipating the near future) of the desired investment seem fragile: cement sales have fallen consecutively since January, according to data from the dominant companies in the sector – Secil and Cimpor – and from the Bureau of Finance studies (GPEARI). .
INE confirms this image. The number of permits for building and renovating houses (housing) also started to fall: in May they fell by more than 13%.
The same INE also shows that the net wages of employees seem to be faltering. In the first quarter of 2022, before the consequences of the war, the average final income that employees took home grew by more than 4%. A year later, the advance remained at a paltry 0.1%.
Tourism is of course saved. On the verge of breaking a record and surpassing pre-pandemic levels, the cumulative number of guests (tourists and other customers) in hotels and the like (including local accommodation) is close to 11 million people. The value exceeds the total population of Portugal and is 26% above the same month last year. The revenues (in euros) will follow.
Source: DN
