Country outlook Portugal - CaixaBank Research
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Country outlook Portugal
Form of Government: Unitary semi-presidential republic
Portugal Capital: Lisbon
Official language: Portuguese
Population: 10.3 million inhabitants (2016)
Currency: Euro (EUR)
Exchange rate: 1 EUR = 1.22 USD (28/02/2018)
GDP: $204.6 billion (0.2% of world GDP)
GDP per capita: $19,820 ($28,916 purchasing power parity)
Ease of doing business: 29th in the world out of 190
according to the World Bank (Doing Business)
Religion: Catholic: 84.6%
Time zone: 1 hour behind mainland Spain
Country outlook is a publication by CaixaBank Research that contains information and opinions from sources considered to be reliable. This document is for informative purposes only and
CaixaBank is not liable in any way for any use made thereof. The opinions and estimates are those of the CaixaBank Research and are liable to change without prior notice.
Portugal
Economic GDP. Year-on-year change (%) CPI. Year-on-year change (%)
forecast 3
Forecast
2.0
Forecast
1.6 1.5 1.6
2 1.5
2.7 2.4 2.3
1 1.0
0 0.5
-1 0.0
-2 -0.5
Average 2013 2014 2015 2016 2017 2018 2019 Average 2013 2014 2015 2016 2017 2018 2019
2008-12 2008-12
• After the strong growth of 2017, the Portuguese economy is • Inflation picked up in 2017, thanks to the recovery of
expected to continue to grow at a firm pace in 2018 and 2019, commodity prices and the dynamism of economic activity. This
supported by internal demand, which will maintain its upward trend will continue in 2018. However, expected
robustness thanks to the satisfactory behaviour in private inflation levels will continue to be relatively contained, and
consumption and a strong recovery in investment. External below the ECB target.
demand will continue to contribute positively to growth,
given the strength of exports, which will benefit from a more
favourable exterior environment (especially in the euro area) 3
and the gains in competitiveness of recent years.
2
1
Economic Benchmark interest rate (%) Fiscal balance
0 (% GDP)
policy and exchange rate (EUR/USD) -1 Forecast
0
Forecast -1.2 -1.1
3.0 1.5 -2 -1.3
2.5 1.20 1.22 -2
1.13
2.0 1.0
-4
1.5
1.0 0.5 -6
0.5
0.00 0.00 0.10
-8
0.0 0.0
Average Average 2013 2014 2015 2016 2017 2018 2019
Average 2013 2014 2015 2016 2017 2018 2019
2008-12 2008-12 2008-12
Benchmark interest rate (left scale)
Exchange rate (right scale)
0
Current account (% GDP) Public debt (% GDP)
Forecast Forecast -2
4 150
2 3,0 125.6 122.8
0.5 0.6 0.8 120.4 -4
0 2,5
100
-2 2,0 -6
-4 1,5
-6 50 1,0 -8
1,5
-8 0,5
-10 0 0,0
1,0
Average 2013 2014 2015 2016 2017 2018 2019 Average 2013 2014 2015 2016 2017 2018 2019
2008-12 2008-12
0,5
• The foreign position of Portugal, which was a significant • The 2018 budget envisages a reduction of the general
source of vulnerability before the crisis, has improved government deficit to 1.0% of GDP and a fall in the public debt
significantly in0,0recent years. In particular, Portugal has been ratio to 123.5% of the GDP. Although we expect a somewhat
able to replace its high current account deficits (which reached higher4 general government deficit, measures aimed at
12% of GDP in 2008) with sustained current account surpluses. controlling expenditure will keep the fiscal imbalance close to
2
For 2018, we expect good export performance should allow the government target.
for an external surplus of around 0.6% of GDP. 0
• The public debt ratio remains at high levels, but lower
• The improved economic outlook, together with the progress -2
general government deficits, together with sustained
made in fiscal matters and the advances in the restructuring of -4 GDP growth will help decrease the public debt ratio
nominal
the banking sector have led to an improvement of the by around
-6 2.5 p. p. per year, a rate somewhat higher than that
country’s sovereign rating. In this context, the improved forecast
-8 for the whole of the euro area.
investor sentiment has contributed to the sharp decrease in
-10
the Portuguese risk premium from 365 bp in March 2017 to
the current 130 bp.
Financial Private credit (% GDP) Gross external debt (% GDP)
conditions Forecast
250
Forecast
200
200
150 210.0 200.0 195.0
108.0 104.4 150
100.9
100
100
50 50
0 0
Average 2013 2014 2015 2016 2017 2018 2019 Average 2013 2014 2015 2016 2017 2018 2019
2008-12 2008-12
• The private sector deleveraging process is well very • Over the past few years, several efforts have been made to
advanced, but it has not ended. In particular, private debt strengthen the robustness of the banking sector. Portuguese
(non-financial firms and households) has fallen considerably banks have increased their capital positions (the CET1 capital
from peak levels in 2013 (230% of GDP) to 181% in Q2 ratio stood at 12% in Q3 2017 compared with 7.4% in 2010)
2017. However, corporate debt remains at high levels and the stock of NPLs, although still high, remains stable
(110% of GDP) and remains a burden. The private (17% in Q3 2017). Furthermore, there has been considerable
deleveraging process is expected to continue over 2018- progress in the restructuring of the sector, especially after
2019. the recapitalisation of the public entity Caixa Geral de
200 Depositos and the sale of 75% of Novo Banco.
150
Source: CaixaBank Research, based on data from Thomson Reuters Datastream, IMF, Bloomberg and Oxford Economics.
| 105
100
Portugal
Rating
BBB- Ba1 BBB
• S&P and Fitch recently upgraded the sovereign rating to “investment grade”, from BB+ to BBB- and BBB, respectively.
• Moody’s has recently raised its rating outlook from “stable” to “positive”. The ratings outlook is stable for S&P and Fitch.
• A country is rated as “investment grade” if its rating is BBB- or higher (S&P and Fitch) or Baa3 or higher (Moody’s).
Political situation • The minority government of socialist António Costa has • The Socialist Party emerged as the strong winner in October’s
turned out to be more stable than expected. However, the local elections, winning more than half of all City Councils
fact that is dependent on the parliamentary support of two with nearly 40% of the votes. These results confirm the
parties with different political orientations implies that the growing support for the Socialist Party since the previous
government in a weak position to implement meaningful elections in 2015, and foretell another strong showing for
reforms. the upcoming legislative elections (end of 2019).
Long-term GDP growth (%) Population. Milions of inhabitants
outlook 2.0 10.5
10.3
1.5
1.5
10.0
10.0
1.0
0.5
9.5
0.0
-0.1
-0.5 9.0
Average 2008-17 Average 2018-28 2017 2027
• The outlook for medium- and long-term growth continues • Given that the size of the market is small, Portugal shows a
to be modest, primarily because of the relatively low level clear commitment to internationalisation (it is a point of
of investment (total investment is still 26% below its contact of the EU with countries such as Mozambique and
precrisis level) and a decline in the labour force. Angola), which requires continued improvement in factors
• It is still important for Portugal to effectively implement an such as innovation and human capital.
agenda of additional reforms that will contribute to raising
investment and productivity. Among the priorities of
particular importance are: increasing competition in the
products market, reducing the duality in the labour market,
improving public sector efficiency, and improving the
environment for doing business (such as the reduction of
bottlenecks in insolvency proceedings). These reforms are
unlikely to be implemented in the medium term.
Risks SHORT-TERM LONG-TERM
• A less favourable external • Lack of progress in
environment - + structural reforms - +
• Private and public debt - + • Negative demographic outlook - +
• High stock of NPLs - +
Business STRENGTHS WEAKNESSES
environment • Regional business hub (Africa). • Institutions (excessive bureaucracy and inefficient judicial
• Infrastructure. system).
• Capacity to adopt new technologies. • High private and public debt.
• Rigidities in the labour market.
Main 68,9
• Services: trade, hotels and restaurants and 72,7
catering. 92,2 86,2
• Industry: 55,1
transportation, agri-food and textile.
66,2 70,7 79,6 71,5 60,2
sectors
CIBI | CaixaBank Index POSITION IN COUNTRY PILLARS 1. Accessibility SUBPILLARS
for Business RANKING
Top
100
Internationalisation 68.9 80 Similar tastes to Spain
7 60
40
Credit
Financial development
67 5. Stability
55.1 20 72.7 2. Ease
of operating
0
Bottom
Macroeconomic stability
Infrastructures
Purchasing power
86.2
92.2
4. Financial 3. Commercial
environment attractiveness
— Western Europe — Portugal
(Min. 0 - Max.
100 100)
80
Note: the CIBI measures the ease of internationalisation for Spanish companies in each country. The analysis is carried out for a total of 67 countries, resulting in a ranking that
reflects their attractiveness to Spanish companies. In the global ranking, the lower the number, the
60 easier the internationalisation. In the pillars, on the other hand, the higher
the number, the easier the internationalisation. See the document “CIBI. CaixaBank Index for Business
40
Internationalisation”, available at http://www.caixabankresearch.com/
Source: CaixaBank Research, based on data from Thomson Reuters Datastream, IMF, Bloomberg and
20 Oxford Economics.
106 |
Portugal
Taxation Earnings obtained by companies in Portugal have paid 31.5%. For companies without their permanent tax
a general tax rate of 21% since 2015. There is also a domicile in Portugal, the rate applicable to earnings
state tax for companies, divided into two brackets: obtained in the country is 25%. For companies located
between EUR 1.5 and 7.5 million, the rate is 3%; in the Azores or Madeira, the tax rate applied is 16.8%
between EUR 7.5 and 35 million the rate is 5%; and for and 21%, respectively. Value added tax in Portugal is
all earnings in excess of EUR 35 million the rate is 7%. 23% as a general rate, with a reduced rate of 13% and
There is also a municipal tax that can reach 1.5%. In a super-reduced rate of 6%.
total, the maximum rate applicable to companies is
Investment In Portugal, foreign direct investment for 2015 was infrastructures, renewable energy sources, etc. Spain
6.030 billion dollars. The country’s increased appeal as is the main investor in the country, followed by many
a destination for investment by foreign firms is due to European Union Member States as being a member
the latest public projects, aimed at improving eases the investment process.
Establishment LOCAL COMPANY
Apart from acquiring a Portuguese firm, the most Registry. In the case of a limited liability company, this
widespread ways of setting up a business in this must be founded by two partners (although this can be
country are: opening a company per se or in the form just one in the case of a Sociedad Unipessoal por
of a branch. The most common forms of company in Quotas – SUQ); the minimum capital is set by the
this country are: joint stock company (S.A.) and founders. For this kind of company, there must be one
limited liability company (L.D.A.). A series of or two auditors if two of the following three conditions
requirements must be met to set up a joint stock occur within two consecutive years: EUR 1.5 million on
company in Portugal: minimum capital of 50,000 the balance sheet, net sales of EUR 3 million and the
euros, at least five founding members (the number of average number of employees per year is 50 or more.
which may be reduced subsequently) and, finally,
entering the company in the Portuguese Commercial
BRANCH / REPRESENTATIVE OFFICE
A foreign company must be entered in the RNPC translated into Portuguese, a copy of the deed with
(Registro Nacional de Pessoas Colectivas) to be able to the board of directors from the main company
operate in the country. The documents required for certifying that a branch is being set up and powers of
registration are as follows: the deed of incorporation attorney.
for the main company, the articles of association
Alliances FREE TRADE ZONE
strategic There are two industrial free trade zones (ZFI) in Portugal: one in Madeira (integrated within the International
Business Centre of Madeira – IBC) and the other in Sines.
JOINT VENTURE
Portuguese law allows these kinds of associations and determined by both establishing parties. The
they are governed by Decree-Law 231/81, where they agreement must be in writing and signed before a
are called consortia. Associations of this kind are notary, specifying the objectives, the distribution of
created for a specific purpose and with a duration profits and the leading partner.
Customs FREE TRADE AGREEMENTS
conditions The 28 EU Member States form part of the same barriers between Member States. A common tariff is
territory for customs purposes. The very definition of a applied for imported products; once effective, goods
customs union validates the inexistence of tariff can circulate freely throughout all countries in the EU.
FREE TRADE ZONE
All companies registered in Portugal’s Company dos Benefícios Fiscais (EBF). The main benefit is a
Registry can be set up in the industrial free trade reduction in tax to 5% during the period 2013-2020.
zones to make use of the facilities, get lower costs This applies to companies carrying out the following
and tax breaks set out in Article 36 of the Estatuto economic activities: industry, sales or sea transport.
GENERALISED SYSTEM OF PREFERENCES (GSP)
Portugal is one of the countries that, by belonging to the EU, grants tariff preferences by applying zero duty or
reduced tariffs to beneficiary countries (less developed countries).
| 107Portugal
Negotiations BUSINESS CULTURE
and protocol When beginning commercial relations with Portuguese therefore it is advisable for a director or a senior
firms, certain factors should be taken into account manager to always attend. The explanation must
that can help to make a good first impression. make the benefits for the Portuguese firm very clear,
Negotiations are slow and a schedule of meetings but without going into too many technical details.
should be set with some advance notice. Once at a Punctuality and the giving of gifts are customary to
meeting, Portuguese businesspeople place a lot of strengthen relations.
importance on the rank of the people attending,
Treaties AGREEMENTS
There is an agreement between Portugal and Spain to avoid double taxation and prevent income tax evasion,
in force since 1995.
Top fairs • Exponoivos. • Intercasa.
• Sibab. • Portojóia.
• Ceranor.
Websites • Spanish Embassy in Portugal: Address: Palácio Lima Mayer, Rua do Salitre 1, 1269-052 Lisbon. Tel.: +351 21 347 23
of interest 81/82/83. Fax: +351 21 347 23 84
• Agency for Investments and International Trade: www.portugalglobal.pt
• Business Institute: www.iapmei.pt
• Spain’s trade offices in Portugal: http://www.icex.es/icex/es/navegacion-principal/todos-nuestros-servicios/
informacion-de-mercados/paises/navegacion-principal/portada/index.html?idPais=PT
• Portuguese Chamber of Commerce: www.aeportugal.pt
• Portuguese Association of Small and Medium-Sized Enterprises: www.pmeportugal.pt
• Portuguese Industrial Association: www.aip.pt
Payment MEANS OF COLLECTION
and charging Cheques are one of the most customary payment Both bills of exchange and cheques are enforceable
methods methods, and payment plans are even established in Portuguese law, and therefore allow the seller to
using post-dated cheques. Bills of exchange are also ensure payment. Bank transfers via the SWIFT
widely used. Creditors are not required to issue a international system are also extensively used in this
protest notice before bringing an action to court. market.
MEANS OF PAYMENT
The most used means of payment are the same as the and regulated for increased security. Transfers and
most used means of collection. Bills of exchange, receipts are currently used via SEPA.
cheques and international transfers are widely used
EXCHANGE RATE INSURANCE
It is not necessary to take out any exchange rate insurance as Spain and Portugal belong to the same economic
and monetary union (euro area).
CaixaBank CaixaBank has an 84.5% stake in the Portuguese in and focuses on banking activity, where it offers an
in the country bank BPI after completing its recent takeover bid for extensive set of financial services and products aimed
the entity. The Portuguese financial group specialises at individuals, companies and institutional investors.
108 |CaixaBank Date this edition was closed: 28/02/2018
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