Wages go up as unemployment continues to reduce
The BdP revised the unemployment rate at 7% for the current year. The improvements in the job market are allowing for wages to increase, which also betters the private consumption levels.
Salaries in Portugal are accelerating as a result of better job market conditions in the country. This is the conclusion from the Bank of Portugal (BdP), who reviewed the unemployment rate for this year at a new low (7%) last Thursday.
“Wages shall start going up now, pressured by the lowering in the unemployment rate, and the expected impact such phenomenon must have on the minimum wage, alongside the unblocking of the government employees career progress and their salary echelons updates” the BdP’s Economic bulletin showed.
The Portuguese central bank also explained that “accompanying the euro area trend, Portugal will witness an improvement in the conditions in the job market, particularly in terms of wages increase”.
BdP is looking at three main indicators:
- “First, according to the Labour, Solidarity and Welfare Ministry, in the first semester of 2018, the base wage per worker declared to the Welfare offices had registered an increase of 2.2%, which represented an acceleration in comparison to the 1.7% registered in total for 2017”.
- “Secondly, the positive evolution of the wages is also a result of the improvements in terms of collective labour agreements in Portugal, as there are many more instruments for regulating these types of contracts. Until July 2018, 173 new instruments were published in the country, aiming at regulating these collective labour agreements, covering around 520 thousand workers, and resulting in an upgrade in salaries of around 3%”
- “And thirdly, given the rising importance of wage distribution in the county, Portugal has witnessed an increase in salaries in 2018 and this shall as well be reflected on the national minimum wage. By the beginning of the year, the minimum wage went from €557 to €580, which means there was an accumulated increase of about 19.6% by the end of the year.”
As for the evolution of the unemployment rate, the bank said that “the evolution for the job market in 2018 is characterized by an increase of 2.3% in employment, which is 0.1% lower than in 201. The unemployment keeps its downward trend, and it shall get to 7% in 2018 (which is 1.9% lower than in 2017). In June, the BdP had estimated the unemployment rate to stand at 7.2%.
Private consumption will increase
The central bank also explained in this report that these improvements in the job market conditions, connected with the recovery in households’ trust — which now stands at historically high levels — , has allowed for the “significant growth of the real disposable income”, which in turn promotes private consumption to increase.
Given this new macroeconomic environment, the Bank of Portugal has also readjusted its estimates for private consumption: from a growth rate of 2.2% in June to 2.4% now. This means that despite the “economic slowdown” that was expected to happen between 2017 and 2018, private consumption shall keep pumping up (in 2017 private consumption registered a variation rate of 2.3%).
Private consumption is the component which weighs more on the GDP — almost up to 65%. However, this high expectation for the increase in private consumption was not enough to change the BdP’s estimates for the GDP growth rate, as the regulator is far less optimistic about exports and investment.
