NDLI: Rebalancing the economy and returning to growth through job creation and better capital allocation

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OECD Economic Surveys: Portugal 2012

Basic statistics of Portugal, 2011

Executive summary

Key recommendations

Assessment and recommendations

Solid foundations for a sustainable fiscal consolidation

Rebalancing the economy and returning to growth through job creation and better capital allocation

Rebalancing the economy and returning to growth through job creation and better capital allocation

Content Provider	OECD iLibrary
Organization	OECD
Abstract	Low growth and huge current account deficits have characterised the Portuguese economy over the past decade. Easy credit in global markets, combined with the absence of incentives to limit loan-to-deposit ratios until recently, made it possible to finance internationally high levels of consumption and investment relative to gross domestic product (GDP) through over reliance of the banking sector on wholesale funding. This led to high households’ and firms’ indebtedness and made banks vulnerable to shifts in investor sentiment. However, investment and credit were mostly directed to sheltered sectors, giving rise to an oversized road infrastructure, electricity generation capacity and housing stock. Weaknesses in labour market institutions further held back productivity and hampered wage adjustment, making it harder to gain cost competitiveness.The deleveraging process set in motion by the loss of access to foreign financing is helping to rapidly reduce external deficits, but also has the potential to generate a damaging credit contraction, which enhances the importance of alternative financing strategies for firms, such as greater reliance on equity. To restore growth, Portugal needs to foster the reallocation of both labour and capital, essentially towards the tradable sector. Building on recent policy initiatives or commitments, this will require reforming public policies that have long distorted investment allocation, ensuring that banks adequately recognise and provision problematic loans and, on the employment front, reducing labour market segmentation and increasing targeted training. Reforms in wage setting, labour taxation, unemployment benefits and activation policies will foster job creation, thus enhancing output growth while avoiding high unemployment becoming entrenched and threatening social cohesion.
Page Count	31
Starting Page	83
Ending Page	113
Language	English
Publisher	OECD Publishing
Publisher Date	2012-08-13
Access Restriction	Open
Subject Keyword	Economics
Content Type	Text
Resource Type	Chapter

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