Skift Take

Saddled with debt and high unemployment, Portugal's economy needs more than tourists alone can provide. Still, an influx of visitors is helping to fuel slow growth.

For Sandra Silveira, who runs a mattress store in central Lisbon, 2017 has been a let-down. Sitting in a deserted showroom, the 44-year-old said the nascent signs of a recovery last year have evaporated.

“Nothing is happening, nothing,” said Silveira. “If this is how it’s going to be, 2017 will be a very bad year. And that wasn’t the expectation.”

Silveira’s experience is a microcosm of a wider problem hampering Portugal. In countries like Ireland, consumer spending is helping drive a recovery and pull the economy out of its debt trap. Two years after the nation exited its international bailout program, that’s not the case in Portugal even as it benefits from a tourism boom.

Suffering from sluggish growth, the Iberian nation carries one of the EU’s worst debt burdens, worrying both investors and European officials. The nation’s 10-year bond yield is hovering around 4 percent, more than twice the borrowing costs facing neighboring Spain.

Markets are “nervous” about Portugal’s debt level, financial sector and competitiveness, Klaus Regling, who heads up the European Stability Mechanism, told reporters in Brussels last month.

Portugal’s economy grew 1.4 percent last year, slower than the euro region’s average yet again. While unemployment has dropped, it still stands at 10.5 percent, holding back any stronger recovery in consumer spending.

The minority Socialist government has raised indirect taxes on some goods while reversing salary cuts for government workers and increasing the minimum wage. The European Commission expects consumer spending growth to slow further over the next two years.

Retailer Jeronimo Martins SGPS SA reported 2016 like-for-like sales growth of 1 percent at its Portuguese supermarket chain Pingo Doce, a fraction of the 9.5 percent gain at Polish unit Biedronka.

Bank Injection

Without faster growth, debt remains a problem. Portugal’s debt level rose to an estimated 131 percent of gross domestic product at the end of 2016, as the government raised funds for a planned 2.7 billion-euro capital injection into a state-owned bank. By contrast, the debt level of fellow bailed-out nation Ireland dropped to 75 percent.

Portugal made a planned 1.7 billion-euro early payment of its debt to the International Monetary Fund last week, Prime Minister Antonio Costa said on Saturday, according to Lusa. Following that payment, Portugal’s debt is now 1 percentage point of GDP lower than it was before, the news agency reported.

“Financing and the cost of financing are matters that worry this government a lot,” Portuguese Finance Minister Mario Centeno said in parliament on Wednesday.

Some hopeful signs are apparent. Short-term borrowing costs remain low, with two-year bond yields dropping to a record on Friday. The economy grew more than expected in the third and fourth quarters, and tourists are pouring into the country. Last week, airport operator ANA-Aeroportos de Portugal SA said passenger traffic rose to a record in 2016.

“Sales to foreigners have increased,” said Encarnacao Ramos, 62, who works at a store selling purses and shoes in central Lisbon.

Most of her customers are Portuguese, though, and they’re mainly keeping their wallets in their pockets.

“To Portuguese clients, we’re selling more or less the same as in 2012,” she said.

©2017 Bloomberg L.P.


This article was written by Joao Lima from Bloomberg and was legally licensed through the NewsCred publisher network.

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Tags: lisbon, portugal, tourism

Photo Credit: Pedestrians walk down a street in Lisbon, Portugal. The country has seen tourism rise but still needs locals to be more robust consumers. Marco Fedele / Flickr