Portugal has the lowest per capita income in the euro area and until the recent enlargement, it also had the lowest in the EU. Brisk growth in the last years of the 20th century led to some convergence with living standards in the more advanced EU countries, largely thanks to the reforms that began some 15 to 20 years ago. Liberalisation of the financial sector, far-reaching privatisation and deregulation, high investment and improved human capital delivered notable results. Falling real and nominal interest rates in the run-up to euro entry fuelled private sector demand and weakened the government’s incentives to control primary spending. This also led to the build up of major imbalances, including a large external ...

Portugal’s key medium term challenge is to raise income levels, to close the still large gap with more advanced OECD countries. This will require policies and reforms that raise output growth in a durable way, especially via higher labour and total factor productivity. Thanks to average annual GDP growth of about 3½ per cent since the mid 1980s, Portuguese living standards have much improved. However, there have been protracted periods of weak growth when the catching-up process stopped, including the most recent downturn. At this point in time, it is hard to know how much of the ongoing ...

The authorities have undertaken a wide range of reforms to improve competitiveness and ensure faster growth to lift Portugal’s living standards. Given Portugal’s already high degree of labour utilisation, the most promising way of closing the gap in per capita income with more advanced countries more rapidly is by raising productivity growth. The enlargement of the EU opens new opportunities for Portugal, provided measures are taken to meet the competition from the newcomers. The government’s policy agenda for growth, designed against the background of the Lisbon strategy, is at different stages of implementation. It includes: ...

Reducing the fiscal deficit and securing sustainability of public finances over the medium-term has been the main macroeconomic policy priority since 2002. This is first a response to the European fiscal rules, but, more fundamentally, it reflects a political determination to ensure that Portugal’s catching up will not be jeopardised by recurrent fiscal crises. A more comfortable fiscal situation would support growth by: i) allowing automatic stabilisers to operate fully during downturns; ii) improving confidence; iii) putting the public sector in a better position to respond to the long-term development needs of Portugal (for instance in education); and iv) contributing to a friendlier business environment by improving the efficiency and speed of public services. In turn, stronger growth in the long-term should help contain fiscal ...

The current Portuguese system providing health care and insurance was established in the second half of the 1970s, after the democratic revolution, as a response to very low health care coverage and poor health status of the population.85 The new system has succeeded in drastically improving the health status of the population and bringing it close to the European average in many respects in less than 30 years. Despite this success, numerous shortcomings remain, and the system faces strong pressures to adapt. In 1998, the OECD Economic Survey of Portugal assessed the system as “beset by serious inefficiencies and misallocation of resources”, identified the key challenges facing it and made various recommendations. A reform programme was initiated at that time, but it was short-lived. A new, more ambitious reform ...