Tag Archives | portugal

How Did Portugal Reduce Current Account Deficit?

Readers Question: Can you tell what Portugal has done to reduce the Current Account GDP deficit so steeply?

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The reduction in the Portuguese deficit is quite striking. In researching the answer to this question, I came up with a different post – The Portuguese Economic crisis

From what I can gather, essentially, the rapid reduction in the current account is due to a sharp fall in consumer spending on imports, combined with some growth in exports – helped by improvements in unit labour costs. However, bear in mind, I may have missed out a few other reasons due to lack of data.

Likely Reasons for Reduction in Current account deficit

1. Fall in consumer spending on imports.

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Portuguese economic growth compared to Germany

As mentioned in The Portuguese Economic crisis Portugal has seen the biggest fall in real GDP (apart from Greece) in the Eurozone. Portuguese consumers have seen a rapid fall in disposable income due to a combination of tax rises and public spending cuts. With lower income, Portugal is simply buying less imports – this improves the current account.

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Portugal Economic Crisis

In the past few years, the Portuguese economy has suffered a deep recession and rising unemployment. The outlook for 2013 is also grim, with the government proposing more tax increases and spending cuts in an effort to meet deficit reduction targets.

What caused the Portuguese economic crisis?

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In the period Q4 2o10 to Q4 2012, the Portugese economy has declined over 5.3%

Portugal Unemployment

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With the rapid drop in real GDP, and austerity  measures, the Portuguese unemployment rate has increased at one of the fastest rates in the EU.

It has got so bad, the Portuguese Prime Minister has been quoted as saying the young Portuguese, should show more effort and leave the country in an effort to get a job. ‘They should show more effort’ and ‘leave their comfort zone.’ (FT) He suggested that teachers unable to find a job at home should think about emigrating to Angola or Brazil. Unsurprisingly, the austerity  measures are leading to widespread protest and concern the relatively new Portuguese democracy could be threatened by the spectre of mass-unemployment.

Portugal National Debt

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Portugese national debt at Statistica | Eurostat | Global Finance est 2012

On joining the Euro, Portugese national debt was below the 60% limit set by the Maastricht criterea. By the start of the debt crisis in 2009, the level of public sector debt had edged up to 70% of GDP. However, the recession of 2009-12, has seen a rapid increase in the level of debt, despite efforts to reduce public spending and austerity measures pursued by the government.

In 1998, Portugal government debt per capita was €5,443 per person, by 2010 this has increased to €15,115

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