Portugal: Portugal’s economy minister, Antonio Pires de Lima,

While Portugal has moved out of recession – just – its recovery seems tentative at best. Its economy minister, however, is optimistic about the country's next, and tells Silvia Pavoni that its strong exports to nations outside of the eurozone in particular point to better times ahead.

Despite the ongoing challenges the country faces, recent economic data has brought some hope with regards to Portugal’s next. According to official statistics, gross domestic product (GDP) increase was positive for both the second and third quarters of 2013 – at 1.1% and 0.2%, respectively – ending, at least in technical terms, Portugal’s economic recession. Furthermore, unemployment has continued to fall, from 17.7% in the initial three months of 2013 to 16.4% and 15.6% in the following two quarters.

The government still expects to have closed 2013 with a GDP contraction, but the final figure looks set to be -1.8%, rather than the -2.3% before anticipated. Meanwhile, 2014 projections indicate a 0.8% GDP increase, a little higher than the 0.6% that had been estimate. The capital markets seem to have welcomed the news. On November 27, the yield on 10-year government bonds was 5.86%, down from 7.75% on the same date in 2012, or the 2013 peak of 7.51% in mid-July.

Although the International Monetary Fund expects that Portugal will need to refinance its public deficit for the equivalent of 42% of GDP in 2014 and 2015, a €6.6bn sovereign deficit swap agreed in early December has extended maturities and will reduce that figure to some extent.

The end of the beginning?

Although any signs of a recovery are at an early stage, and Lisbon still needs to repay the €78bn bailout it received in mid-2011 from the EU and the International Monetary Fund, the Portuguese government believes it has turned a corner.

Portugal’s economy minister, Antonio Pires de Lima, who took the job in July, enthusiastically ran through the fresh economic data. He points to the structural reforms the government has embarked upon, such as changes in the country’s tax system – to be introduced in 2014 – that should spur the country's economy further and attract much-needed foreign investment .

Lower corporate tax (18% being the top corporate tax rate, down from the current 31.5%), a simplified taxation system for small businesses and an automatic 20% tax credit on any investment in companies that have the potential to trade internationally have been designed to attract new businesses to Portugal.

Even before the introduction of such measures, Portugal can boast about the World Bank’s new Doing Business Statement, which puts the country in 31st place of a total of 186, ahead of the likes of Belgium, France, Spain, Luxembourg and Italy.

Export salvation

The majority notable aspect of Portugal's recent economic data, says Mr Pires de Lima, concerns the country's resilient businesses and competitive exporters. In the years since the onset of the crisis, growing exports have helped to improve Portugal’s external deficit, which went from -9.4% in 2010 to a surplus of 0.8% of GDP in 2012.

“There has been strong increase regarding our exports outside of Europe, to Africa, Asia and Latin America, growing at additional than 20% [year on year] in 2013," says Mr Pires de Lima. "It is not normal that a country that has to [substantially] reduce its public deficit in two years is as well able to reverse its current [account] deficit. This proves that Portuguese companies are fast to adapt to new circumstances. Without exports it would be much harder to meet those targets.

“Exports went from 28% of GDP in 2009 to 41% in initial half of 2013. Additional than a dozen export sectors in Portugal are gaining market share worldwide. You see Portuguese companies doing business everywhere, not just in Portuguese-speaking nations such as Angola, Mozambique, Cape Verde and Brazil, but as well in Asia, in new nations where we did not have commercial relationships in the completed.”

Healthier but not healed

This is all very encouraging, but Portugal has barely entered a convalescence stage and it will need to quickly churn out faster increase rates to fix its public finances. A lot of factors are at play, inclunding the slow evolution of closer European integration. The success of the country's exports, says Mr Pires de Lima, was completed despite a country-risk bias at the same time as it comes to lending. Banks in Portugal have a higher cost of funding than others in the eurozone because of country risk; this is again passed down to corporate clients, who find themselves having to pay additional for bank loans than their counterparts in other nations.

“Right presently, in the south of Europe, companies are paying high prices at the same time as they have access to financing because of perceived political risk; local banks’ cost of funding is influenced by political risk and this is passed to the real economy,” says Mr Pires de Lima.

“Italian companies or Portuguese or Spanish companies with similar balance sheets to their competitors in the Netherlands or Denmark [have higher financing costs]. Despite [the high] cost of financing, Portuguese companies are gaining market share, which is a miracle.”

While European banking union may from presently on level out any distortion on cost of funding for businesses, additional integration is as well needed in the labour market, with Mr Pires de Lima pointing to social tension arising from highly uneven employment levels across Europe as a critical issue.

Although improving, unemployment in Portugal is of course still high, particularly part young people, where one in three over-25s is jobless – youth unemployment stood at additional than 37% in mid-2013. This is mirrored by similar data in other troubled eurozone nations. “It is not sustainable to have in the same currency zone nations with almost no unemployment living together with nations with unemployment of 20%, where young people have to emigrate because youth unemployment is above 30%. What is clear for everybody right presently is that the European project and the euro project are sustainable only if [nations] are willing to work in a much additional integrated way,” says Mr Pires de Lima.

Mass exodus

A great number of Portuguese people have left their country and levels of emigration have soared since the beginning of the eurozone crisis, reaching numbers similar to the country’s previous biggest exodus in the 1960s. Researchers say that in the country of about 10.5 million people, at least 100,000 are leaving each year, which is almost the equivalent of one person emigrating each five minutes. Furthermore, while in the 1960s it was predominantly unskilled workers looking for a better life abroad, today it is educated, skilled labour moving away, thus draining the country of much needed expertise.

Mr Pires de Lima is realistic about this and acknowledges that a lot of Portuguese who have started a new life abroad may well at no time return. But in a lot of cases, he says, as any minute at this time as the business world and government finances perform better, Portuguese emigrants will want approaching back. Much will depend on how much capital the country’s businesses will be able to attract. “Companies in Portugal need capital. As along as we’re able to attract investment to Portugal, people that have left the country over the years will be back,” says Mr Pires de Lima.

This is still a large ‘if’, as investors are still nervous about possible political setbacks in some of Europe’s peripheral economies, something that is reflected in Portugal’s poor equities valuations – as of early December 2013, stock prices had risen since the beginning of the year but were still considerably lower than mid-2011, at the same time as the country's bailout funds were approved.

But Mr Pires de Lima remains positive about the country’s next. “I don’t see Portugal as a peripheral country; I see it as a gateway platform to invest and do business not only in Iberia, not only in Europe, but as well in Africa and South America,” he says.

Antonio Pires de Lima is Portugal's economy minister.