Economy has been recovering but uncertainty about prospects is high

  • Lusa
  • 10 December 2021

In a study on Portugal, the OECD stresses that "although the vaccination rate is the highest in the OECD, the recovery is surrounded by many uncertainties."

The OECD considers that the pandemic triggered a deep recession in Portugal, as in other countries, but that the economy has been recovering, with the support of public policies, although uncertainty about the prospects remains high.

In a study on Portugal, released Friday, the Organisation for Economic Cooperation and Development (OECD) stresses that “although the vaccination rate is the highest in the OECD, the recovery is surrounded by many uncertainties,” considering that “the economic outlook depends crucially on the evolution of the pandemic, in particular, the effectiveness of vaccines against mutations of the virus”.

In the study, the OECD indicates that economic recovery will be slow due to the containment measures needed to contain the spread of the virus, stressing that Portugal’s public debt is over 130% of GDP (gross domestic product) and that the increase in contingent liabilities may hamper fiscal consolidation.

However, the organisation states that “detailed information on the strategy for containing public spending in the coming years is lacking”.

Regarding available EU funds, including under the Next Generation EU plan, the OECD says they will reach unprecedented levels, but that absorption could be slow due to obstacles in the design, approval and implementation of programmes.

The organisation also stresses that the ageing population puts the financial sustainability of the pension system under pressure.

“The vulnerabilities of the corporate sector have increased,” says the OECD, considering that “insolvencies are likely to skyrocket after the end of the credit moratorium, despite the new relief measure introduced.”

“The government intends to strengthen support for the capitalisation of companies”, it adds, noting that “a wave of insolvencies could result in a sharp increase in credit defaults” and that “the number of insolvency cases pending in the courts is high and likely to increase significantly”.

With regard to the rules on conflicts of interest for political office holders, the organisation states that “they are not strict enough”, underlining that “there are no specific rules for the relationship of MPs with the private sector and with interest groups”.

Regarding responding to social and environmental challenges in times of crisis, the organisation states that “like many other OECD countries, Portugal was hit hard by the pandemic, which put massive pressure on the health sector, aggravated by the shortage of health professionals”, stating that “the ratio of nurses and long-term care providers per inhabitant remains low compared to the OECD average”.

“The covid crisis has brought about important changes in the labour market,” it indicates, considering that “employment prospects have worsened for young and low-skilled workers”.

The OECD considers that “to meet the new ambitious climate objectives and reduce air pollution in large cities, it is imperative to reduce greenhouse gas emissions in the transport sector”, saying that “although resources are projected to increase for the modernisation of water infrastructure, these will be insufficient to ensure high quality services and prevent leakage”. “Municipalities lack the expertise to design and implement water infrastructure projects,” it said.

With regard to telecommunications, the OECD concluded that “broadband prices are relatively high” and “the high market concentration in the telecommunications sector and the low mobility of consumers are indicators of insufficient competitive pressure”.

In the conclusions of the study on Portugal, the OECD also notes that “schools and teachers do not have adequate equipment to use and integrate ICT (information and communication technology) during classes”, but stresses that the government has launched a set of measures to solve this problem as part of the Recovery and Resilience Plan (RRP).

“The number of professionals in the areas of STEM (science, technology, engineering and maths) and ICT should increase to close the skills gap,” indicates the OECD, arguing that “it would be convenient to get more women into STEM and ICT courses,” but stressing that “improving gender equality is one of the objectives of the RRP”.

In the study, the Paris-based organisation also states that “participation in adult learning programmes is low, especially among low-skilled workers, who are most at risk of being affected by the digital transition.”

“Ambitious programmes exist to address this problem, but people not covered by the programmes have little incentive to continue their training,” it adds.

The OECD also concluded that “the lack of knowledge and skills in the area of digital technologies undermines the adoption of digital tools in small businesses”, underlining that “SMEs have difficulties in implementing cybersecurity measures and complying with data protection legislation, but that the RRP includes a set of programmes to support the digital transition in SMEs”.