Below potential
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The Portuguese economy emerged from recession in 2004, driven by exports and private domestic demand. Real GDP growth is expected to pick up further and reach 2.75% in 2006. By any measure, the economy would still not be operating at its potential at the end of the projection period. As a result the inflation differential vis-à-vis the euro area should remain small.
Fiscal consolidation remains a challenge for policymakers. Reliance on large one-off measures to keep the deficit below 3% of GDP has become the norm since 2002. These should be replaced by strict controls on spending and the implementation of already-approved reforms should be accelerated. A radical reform of the pension system is also needed to ensure the long-term sustainability of public finances.
| Population (000s), 2003 | 10 449 |
| Area (000 sq km) | 92 |
| Currency | Euro |
| GDP (Billion USD), 2003 | 146.8 |
| Life expectancy at birth (Women, Men), 2002 | 80.5, 73.8 |
| Total labour force (000s), 2003 | 5 419 |
| Government type | Parliamentary Democracy |
| Indicators | % change unless otherwise indicated |
|---|
| 2004 | 2005 | 2006 |
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| GDP growth | 1.5 | 2.2 | 2.8 |
| Household savings ratio | 12.8 | 12.8 | 12.4 |
| Consumer price index | 2.5 | 2.0 | 1.8 |
| Short-term interest rate (%) | 2.1 | 2.1 | 2.7 |
| Unemployment rate (%) | 6.5 | 6.6 | 6.1 |
| General government financial balance (% GDP) | -2.9 | -3.0 | -3.8 |
| Current account balance (% GDP) | -6.3 | -6.3 | -6.3 |
Source: OECD©
OECD Observer No 245, November 2004
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