Employment has been the main driver of the economy and not productivity, warns BdP – The Economic Journal


The Portuguese economy has grown essentially at the expense of employment growth rather than productivity. The conclusion is from Banco de Portugal (BdP), leaving the alert that the growth potential of the economy is "decisive" to support the growth of private consumption and capital accumulation, without undermining the reduction of indebtedness.

In the Economic Bulletin of May, published on Wednesday, the institution led by Carlos Costa stresses that "the expansion of the Portuguese economy in the last five years has been accompanied by a reduction in the indebtedness of the various sectors of the economy and, accumulated imbalances in the past. "

The Bop notes that "the economy is now more open to the outside world and GDP per capita has been converging slightly with that of the euro area." However, it points out that, "nevertheless, the growth of the product has been essentially a growth of employment and not an increase in productivity".

The regulator's analysis also considers that "it is crucial to persist in the implementation of economic policies that promote convergence between the economies of the euro area, within a framework of coordination between national and European policies and the conclusion of the Banking Union."

The BOP also notes that the recovery of the economy has been accompanied by "a reduction in the indebtedness of the various sectors of the economy and, thus, the accumulated imbalances in the past."

Economy slowed in 2018, following euro zone trend

In the analysis of the national economy of 2018, the BoP stresses that "economic activity slowed down in 2018, against a backdrop of a general deceleration in the euro zone". In this regard, it points out that there has been "a deterioration of the global external environment associated, in particular, with fears of an upsurge of protectionism, with a penalizing effect on trade flows."

"Real GDP increased by 2.1% after growing by 2.8% in 2017. This deceleration accompanied developments in the euro area and was driven by less marked growth in exports and, to a lesser extent, by business investment," refers.

The banking regulator also points out that "per capita GDP has already grown by 2.3% (3% in 2017), with convergence to GDP continuing per capita of the euro area, which increased by 1.2%. Nevertheless, in 2018, per capita Portugal stood at 58% of GDP per capita of the euro area ".

The report also underlines that the evolution of exports of goods and services has been differentiated by markets. While, on the one hand, exports to the European Union have maintained significant growth, on the other hand, they have fallen outside the Union.

"Although they have decelerated, tourism exports increased by 7.5% in 2018 and were, along with car exports, the result of the Portuguese exporters' market share gains, which totaled 0.3 percentage points (pp) in 2018 (3.1 pp in 2017), "he explains. Imports grew by 4.9% in 2018, "although they have also slowed, surpassed the evolution of exports, which translated into a reduction of the goods and services balance surplus."



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