2019 OECD ECONOMIC SURVEY OF PORTUGAL Promoting convergence and - - PowerPoint PPT Presentation

2019 OECD ECONOMIC SURVEY OF PORTUGAL

Promoting convergence and wellbeing

Lisbon, 18 February 2019

http://www.oecd.org/economy/surveys/portugal-economic-snapshot

@OECDeconomy @OECD

Key messages

• Further progress in improving public finances, reducing private debt

and the health of the banking system can improve resilience to shocks

• Export performance can be enhanced through policies that better

enable exporters to innovate and grow

• The efficiency of the judicial system can be further improved, thereby

spurring economic activity

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Economic recovery is well entrenched but further improvements in wellbeing are needed

3

The economy is growing after a double dip recession

Source: OECD Economic Outlook.

Real GDP

• 5
• 4
• 3
• 2
• 1

1 2 3 4

• 5
• 4
• 3
• 2
• 1

1 2 3 4 2007 2009 2011 2013 2015 2017 2019 y-o-y % changes y-o-y % changes

4

Unemployment has continued to decline

Source: OECD Economic Outlook. 2 4 6 8 10 12 14 16 18 2 4 6 8 10 12 14 16 18 2007 2009 2011 2013 2015 2017 2019 Percentage Percentage

5

Unemployment rate

Domestic demand is now also driving the recovery

Annual percentage change

Source: OECD Economic Outlook.

• 15
• 10
• 5

5 10 15

• 15
• 10
• 5

5 10 15 2007 2009 2011 2013 2015 2017

Exports Domestic demand

6

The economic expansion will continue

Source: OECD

% change 2018 2019 2020 Gross domestic product (GDP)

2.1 2.1 1.9

Private consumption

2.2 1.8 2.0

Government consumption

0.7

• 0.1
• 0.1

Gross fixed capital formation

4.5 5.6 4.7

Exports of goods and services

6.0 4.5 3.7

Imports of goods and services

6.2 4.7 4.2

Unemployment rate

7.1 6.4 5.7

Consumer price index

1.3 1.3 1.4

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Convergence has been limited

Source: OECD Compendium of Productivity Indicators

GDP per capita, percentage of OECD average

8

Wellbeing can be improved

Source: OECD (2017), OECD Better Life Index 11 16 18 20 24 28 30 31 32 33 35

Environmental quality Personal security Housing Work-life balance Income and wealth Social connections Health status Jobs and earnings Education and skills Civic engagement Subjective well-being

OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017

20% top performers 60% middle performers 20% bottom performers Portugal

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Encouraging fiscal sustainability and green growth

10

The public debt ratio is falling, but remains high

Source: OECD Economic Outlook: Statistics and Projections (database). 20 40 60 80 100 120 140 20 40 60 80 100 120 140 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 % of GDP % of GDP

11

Gross government debt as a percentage of GDP

Ageing costs will impact public debt

Source: OECD, European Commissions, calculations by the OECD Secretariat.

20 40 60 80 100 120 140 160 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Continued consolidation effort Continued consolidation effort and not offsetting increase in age-related costs Weakening consolidation effort Weakening consolidation effort and not offsetting ageing-related costs General government debt as a percentage of GDP

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There are too many VAT exemptions and reduced rates

Note: The VAT Revenue Ratio is the ratio between the actual value-added tax revenue collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. Source: OECD.

VAT Revenue Ratio

13

Public transport is used much less than in other EU countries

50 55 60 65 70 75 80 85 90 95 50 55 60 65 70 75 80 85 90 95 LTU PRT NOR ISL GBR SVN NLD DEU SWE LUX EU FIN GRC ITA BEL DNK ESP FRA LVA EST IRL POL AUT SVK CHE CZE TUR HUN

Source: Eurostat.

Percentage of individual car use in total passenger transport, 2016

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• Continue gradual fiscal consolidation.
• Raise taxes on diesel fuel, and increase energy taxes on coal

and natural gas.

• Encourage public transport use and the development of new

shared transport solutions.

Recommendations to improve fiscal sustainability and make growth greener

15

Improving financial stability

16

Bank profitability has improved, but remains low

Source: European Banking Authority (EBA), “EBA Risk Dashboard”

Return on Equity (%)

• 4
• 2

2 4 6 8 10 12 14 16 18 20

• 4
• 2

2 4 6 8 10 12 14 16 18 20 GRC DEU FIN PRT ITA ISL GBR BEL FRA EU IRL DNK LUX ESP NLD POL EST AUT NOR SVN SVK SWE LTU LVA CZE HUN 2018 Q3 2016 Q3

17

Nonperforming loans remain elevated, despite improvements

Source: European Banking Authority (EBA), “EBA Risk Dashboard”.

Non-performing loans as a ratio of total outstanding loans, 2018 Q3

2 4 6 8 10 12 14 16 18 20 2 4 6 8 10 12 14 16 18 20 GRC PRT ITA SVN HUN IRL POL ESP EU LVA AUT SVK FRA LTU ISL DNK BEL NLD DEU NOR EST CZE GBR FIN SWE LUX 43

18

Personal bankruptcy law is relatively stringent

Source: Adapted from Adalet McGowan et al. (2017).

OECD insolvency indicator: Treatment of failed entrepreneurs, 2016

0.0 0.2 0.4 0.6 0.8 1.0 0.0 0.2 0.4 0.6 0.8 1.0 CAN TUR USA AUS CHL GBR JPN AUT CHE DNK ESP FIN FRA GRC IRL ITA LVA MEX NOR NZL SVK SVN BEL DEU EST HUN ISR KOR NLD PRT SWE CZE

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Court proceedings for credit claims can be long

Source: Ministry of Justice.

10 20 30 40 50 60 70 10 20 30 40 50 60 70 less than 1 year 1 to 2 years 2 to 5 years more than 5 years Total Credit claim

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• Continue to monitor NPL reduction plans, translating performance

in achieving targets into capital requirements.

• Make bankruptcy a viable solution for heavily indebted

individuals, reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy proceedings.

• Introduce an out-of-court mechanism to facilitate the liquidation of

non-viable firms.

Recommendations to improve financial stability

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Further raising export performance

22

The improvement in export performance has been impressive

Source: OECD Economic Outlook: Statistics and Projections (database). 60 70 80 90 100 110 120 130 140 60 70 80 90 100 110 120 130 140 2007 2009 2011 2013 2015 2017 Portugal Germany Italy Spain Hungary

Export performance, Index 2007=100

23

Tourism has been booming

Source: Bank of Portugal, calculations by the OECD Secretariat.

2 4 6 8 10 12 14 16 18 20 2 4 6 8 10 12 14 16 18 20 Financial services Insurance and pension Intellectual property use Personal, cultural and rec. Construction

• Telecomm. and IT

Clothing and footwear Wood, cork and paper Other manufacturing Hides, leather and textiles Other services Transportation Transport material Agri-food Machines Chemicals, rubbers Minerals and metals Travel and tourism Services Goods

Percentage contribution to total export growth over the 2009-17 period

24

The economy can still be more outward oriented

% of GDP

Source: OECD.

20 40 60 80 100 120 20 40 60 80 100 120 PRT HUN CZE BEL FDI stock Exports

25

Most firms are too small to be significant exporters

Source: Eurostat.

Share of firms with more than 10 employees

2 4 6 8 10 12 14 16 2 4 6 8 10 12 14 16 SVK GRC CZE ESP ITA FRA BEL PRT POL SVN SWE NLD HUN ISL FIN LVA IRL EST LTU NOR GBR AUT DNK DEU LUX % %

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It takes too long to prepare and pay taxes

Time to prepare and pay taxes, 2018

Source: World Bank Doing Business Indicators.

50 100 150 200 250 300 50 100 150 200 250 300 EST LUX CHE NOR IRL FIN LTU AUS GBR NLD SWE JPN AUT CAN DNK BEL FRA ISL NZL ESP OECD LVA TUR USA KOR SVK GRC DEU CZE SVN ITA ISR MEX PRT COL HUN CHL Hours Hours

27

Logistics infrastructure can be improved

Ranking for logistics infrastructure

Source: World Bank Doing Business Indicators.

5 10 15 20 25 30 35 5 10 15 20 25 30 35 PRT HUN CZE ESP ITA BEL FRA DEU Better Worse

28

Improving workers skills is key for raising competitiveness

Percentage of individuals that have completed education

Source: Eurostat.

10 20 30 40 50 60 10 20 30 40 50 60 15-24 25-34 35-44 45-54 55-64 15-24 25-34 35-44 45-54 55-64 Upper secondary and post-secondary education Tertiary education EU Portugal

29

• Simplify the tax system by reducing the use of special provisions

and ambiguity in tax language.

• Ensure that port concession contracts specify a minimum level
• f investment by the operator and do not renew concessions

without opening a new public tender.

• In awarding port concessions, take into account the price that

bidders will charge port users.

• Target lifelong learning opportunities to the low-skilled, including

by collecting information on the private returns to skills and making it publicly available.

Recommendations for further promoting export performance

30

Enhancing judicial efficiency to foster economic activity

31

Court proceedings are shorter than before, but still long

Source: Council of Europe European Commission for the efficiency of justice (CEPEJ)

Average time needed to resolve civil and commercial cases, first instance courts, in days

32

The average time to pay is long in Portugal, partly reflecting weak contract enforcement

The average time actually taken to pay, Business to business, in days.

Source: Intrum (2018), “European Payment Reports 2018”.

33

Loan forbearance is common, while collateral enforcement is difficult

Source: EBA, “Risk Assessment Report” December 2018.

The forbearance loans ratio as a percentage of total outstanding loans in the corporate sector, Q2 2018

5 10 15 20 25 5 10 15 20 25 GRC PRT SVN IRL ITA ESP ISL NOR HUN POL EU DEU NLD AUT DNK BEL GBR SWE FRA FIN EST LUX

34

Recent reforms reduced pending proceedings, but court congestion remains significant

Source: Pordata.

Number of initiated, terminated and pending proceedings per judge

200 400 600 800 1000 1200 200 400 600 800 1000 1200 2000 2002 2004 2006 2008 2010 2012 2014 2016 Initiated Terminated Pending

35

Significant bottlenecks remain in some courts

Source: Ministry of Justice and High Council for the Judiciary.

Civil cases, 2017

How to read this chart: Court efficiency (measured by “Resolution rate” which is the number of resolved cases divided by the cases in stock) tends to be low where court resources are relatively scarce. 300 600 900 1200 1500 1800 0.1 0.2 0.3 0.4 0.5 0.6 Resolution rate (LHS) cases in stock/number of judges (ratio, RHS)

36

Regulation in the legal professions is too strict

OECD Indicators of regulation in the legal services sector

Source: OECD Product Market Regulations Statistics (database).

37

Alternative dispute resolution mechanisms can be developed further

Source: INE.

Number of proceedings in “Justice of peace courts” vs. in the court system.

200 400 600 800 1000 1200 1400 2 4 6 8 10 12 14 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 thousands thousands

incoming cases, justice of peace courts (LHS) pending cases, justice of peace courts (LHS) incoming cases, court system (RHS)

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• Increase the managerial autonomy of the courts so that they can

effectively allocate resources.

• Fully analyse the data collected from the information system on

court proceedings (CITIUS) so that it allows the courts to identify problematic cases and those that should be prioritised.

• Set up an independent supervisory body to ensure that regulations

in the legal profession are in the public interest.

• Continue to enhance the capacity of the Public Prosecution Office

to address economic and financial crime. Public prosecutors should continue to undertake specialised training in this area.

• Establish an electronic registry of interests for all government

members and senior civil servants that is regularly updated.

Recommendations for enhancing the judiciary to foster economic activity

39

Improving labour utilisation and further reducing poverty

40

The incidence of long-term unemployment is still quite high

Source: Eurostat Labour Force Survey database.

As a percentage of total labour force, 2018 Q3

3 6 9 12 15 18 21 3 6 9 12 15 18 21 GRC ESP TUR ITA FRA LVA PRT FIN SVK LUX SWE IRL BEL LTU EST SVN DNK AUT CHE GBR NOR HUN POL NLD DEU CZE ISL Unemployment rate

• f which, long-term unemployment

41

Low-skilled people face significant employment barriers

10 20 30 40 50 60 70 80 10 20 30 40 50 60 70 80 Lack of skills Scarce job

• pportunities

(regress) Health limitations "High" non-labour income "Low" relative work experience No past work experience "High" earnings replacements "High" care responsabilities

Percentage of those unemployed or with weak labour market attachment facing each employment barrier

Source: OECD (2018), “Faces of joblessness in Portugal”.

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• Avoid across-the-board rises in hiring subsides, limiting them to

those at high risk of long-term unemployment and those at risk of poverty.

• Expand well-designed vocational training programmes (i.e.

“Aprendizagem” and “Cursos de Educação e Formação de Adultos”), so that they reach more of the low-skilled population.

• Consolidate the two vocational education systems into a single

dual VET system with strong workplace training and perform a thorough evaluation of all vocational training.

Recommendations for improving labour utilisation and reducing poverty

43

Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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