| NOTAS: | "The size of the imbalances that have accumulated in recent years have weakened the outlook for domestic demand growth, and also left Portugal with little choice but to pursue budgetary rigour for some time. Recovery will have to wait on that in European trading partner countries, but Portuguese competitiveness has been damaged by comparatively high inflation rates. Wage settlements will need to take this into account. The recovery is therefore likely to be gradual, and a return to the fast growth rates of the late 1990s may have to wait for some years. The authorities have rightly stressed the need for fiscal consolidation during this period, especially as a much improved budgetary position will be needed to cope with ageing pressures over the longer term. Return to budget balance will be speeded, and fiscal sustainability thereafter will be assisted, by measures that contain the growth of primary spending, especially on wages and salaries in public administration. Such measures will be more effective if they take place in the context of a medium-term process that includes hard budget constraints and greater recourse to market-oriented solutions in the delivery of public services. Such reforms would help avert future fiscal shocks that lower growth in the short term. Macroeconomic performance would be enhanced in the longer term by a range of structural reforms in labour and product markets, such as proposed in the Productivity and Growth Programme. Potential growth could be raised by educational and training policies that raise average competence levels in both school leavers and existing employees. Also, university graduates command high salary premiums, and the beneficiaries should be required to participate financially to a greater extent in their studies. Other growth-enhancing reforms include raising the mobility of employees within and between firms and encouraging the use of better technologies and management methods. More competition, especially in network industries, will also raise productivity levels and put downward pressure on prices. Portugal has great potential for catch-up with other euro-area countries, as demonstrated in the past. Reforms are required across a broad front to release this potential." |
