Home Business News Portugal: Use post-Covid recovery plan to bolster growth and public finances, says OECD

Portugal: Use post-Covid recovery plan to bolster growth and public finances, says OECD

by LLB Politics Reporter
10th Dec 21 12:50 pm

Portugal’s economy is recovering from the COVID-19 crisis, thanks to swift and effective policy action and a successful vaccine rollout. As the recovery progresses, it is important to pursue investment and structural reforms that will raise living standards, strengthen public finances and put growth on a strong, sustainable and resilient path, according to a new OECD report.

The latest OECD Economic Survey of Portugal notes that with an ageing and shrinking working age population, future growth will hinge on productivity gains. Portugal should use its EU-funded Recovery and Resilience Plan to accelerate the digital and green transitions, focusing on projects that will have the strongest economic and social impact.

“Portugal is recovering fast from a profound economic shock, and we see this recovery continuing,” OECD Secretary-General Mathias Cormann said. “It will be crucial to optimise the strength and the quality of the recovery, through higher productivity and by accelerating the digital and green transitions. The Recovery and Resilience Plan offers a way to help achieve this and it should be implemented swiftly and effectively.”

The pandemic dealt a severe blow to the Portuguese economy. After an 8.4% drop in 2020, Portugal’s GDP is projected to rebound by 4.8% in 2021 and 5.8% in 2022, helped by the fact that close to 90% of the population is now fully vaccinated, the highest rate in the OECD.

Nevertheless, economic activity in key sectors like tourism, transport and hospitality is still below pre-crisis levels. Targeted support to households and firms should be continued, and adapted to the evolution of the pandemic, the Survey says. Support to young and low-skilled jobseekers should be strengthened to help them adapt to a changing labour market. More should be done to help viable firms to raise capital.

Portugal should also reduce macroeconomic imbalances to put the recovery on a stronger footing. The public debt-to-GDP ratio has risen to among the highest in Europe, and as the recovery takes hold, it will be important to put in place a clear and credible medium-term fiscal adjustment plan. Reforms are needed to prepare for a shrinking working-age population, as well as to improve public sector administration. The long-term sustainability of the pension system could be further improved. The pandemic has also increased financial risks in the corporate sector, and Portuguese banks are shouldering a high-level of non-performing loans. The Survey recommends strengthening incentives for banks to reduce the level of high-risk assets.

Going forward, accelerating the digital transition will be vital to adapt Portugal’s economy to a post-pandemic world and boost productivity growth, which has lagged behind the OECD average for most of the past two decades, according to the Survey. This will require helping firms to adopt new technologies, equipping the population with digital skills and improving access to high-quality broadband services.

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