High debt and non-performing loans still leave economy ‘vulnerable’, says European Commission

  • Lusa
  • 27 February 2019

The European Commission still places Portugal among EU member states with "macroeconomic imbalances", warning that high levels of debt and non-performing loans still make the economy vulnerable.

The European Commission on Wednesday said that it still classes Portugal among European Union member states with “macroeconomic imbalances”, warning that high levels of debt and non-performing loans continue to constitute “vulnerabilities” in the economy.

One year after removing Portugal from the group of states with the most critical “excessive macroeconomic imbalances” – which now includes only three EU members, namely Cyprus, Greece and Italy – the EU executive in its European Semester Winter Package 2019 has announced that it is keeping Portugal in a second, less serious, category of member states with imbalances. It recognises progress in several areas, but also several weaknesses.

The other countries identified as having macroeconomic imbalances are Germany, France, Spain, Ireland, the Netherlands, Sweden, Bulgaria, Romania and Croatia, the latter promoted from its classification last year as among countries with “excessive” imbalances. Greece has now taken its place in that bottom category.

In the case of Portugal, which sought a euro-zone bailout in 2011, now forms part for the first time in the ‘European semester’ exercise for coordinating economic and budgetary policies since it ended eight years of external assistance.

In its assessment of Portugal, Brussels stresses that high levels of net external liabilities, public and private debt and non-performing loans constitute vulnerabilities in a context of low productivity growth.

The commission recognises that public debt has been falling since 2017, “although it remains high”, and that “risks in the banking sector have decreased, also in the light of the recapitalisation of large banks in 2017 and a recent improvement in profitability”.

It also welcomes the fact that “labour market adjustment” has shown more progress and that unemployment has been declining rapidly “for several years.”

However, it notes, the value of non-performing assets “remains comparatively high”. While “there has been political action” in this area, “there are gaps in policies in other areas [such as] product and service markets.”

There is a need to monitor the “adoption and implementation of several reform plans, including structural budgetary reforms to improve the sustainability of public finances,” it says.

The commission maintains that “ensuring greater productivity growth is key to improving the prospects for competitiveness, deleverage and potential growth” of Portugal.