High levels of debt and bad credit
The Diario reports that the European Commission yesterday maintained Portugal in the group of Member States that it identifies as having “macroeconomic imbalances”, warning that high levels of bad debt and bad credit continue to constitute “vulnerabilities” for the Portuguese economy.
A year after withdrawing Portugal from the most critical group of countries with “excessive macroeconomic imbalances” – which now includes only three countries, (Cyprus, Greece and Italy) – the Commission has kept Portugal in a second, less serious category of imbalances, recognising progress in several areas, but also several weaknesses.
Together with Portugal, Germany, France, Spain, Ireland, the Netherlands, Sweden, Bulgaria, Romania and Croatia are identified as having macroeconomic imbalances.
In the most serious category, Croatia was “replaced” this year by Greece, which left the foreign aid program in the summer of 2018 and, like all the other countries that had “redemptions” – including Portugal (2011- 2014) – presents “excessive” imbalances as it is integrated for the first time in the “European semester” of economic and budgetary policy coordination after eight years of external assistance. In its assessment of Portugal, Brussels emphasises that “high stocks of net external liabilities, public and private debt and a high level of bad credit are vulnerabilities in a context of low productivity growth.”
The European Commission acknowledges that public debt began to decline in 2017, “although it remains high,” and that “risks in the banking sector have declined, also in light of recapitalisation of major banks in 2017 and a recent improvement in profitability”. Brussels also welcomes the fact that “labour market adjustment” has seen more progress and unemployment has been falling sharply “for several years”.
The Commission points out that poor credit levels have declined, “but remain comparatively high,” noting that “there was political action” in this area, “but there are still gaps in policies in other areas, such as product and service markets.””The adoption and implementation of various reform plans, including structural budget reforms to improve the sustainability of public finances, will need to be monitored,” reads the report published yesterday.
Brussels maintains that “ensuring greater productivity growth is fundamental to improving competitiveness, deleveraging and potential growth prospects” in Portugal.