Economics, Taxation

The optimistics and the pessimistics

The optimistics and the pessimistics

The optimistics and the pessimistics

A friend of mine often says that the World is divided into two types of people: the optimistics and the pessimistics. According to him, the optimistics are who make humanity advance, but the pessimistics are who prevent this advance from leading to the precipice.

This is related to the recent news about the positive performance of the portuguese economy. Indeed, there’s no way to deny it. Official indicators confirm this. But, let’s see…

According to data recently released by INE (NSI), the economy grew by 2.8% in the first quarter of 2017, compared to the same period in the previous year, being the highest value in the last 10 years. This was mainly due to increased exports and investment, which underlines the sustainable potential of this growth.

Meanwhile, recent data on Unemployment point to a rate of 10.1%, the lowest figure since 2009. Also, insolvencies fell by 20% in the first quarter of this year. The sale of real estate has been increasing, having obtained the highest value last March (the highest growth of the last seven years). The Consumer Confidence Index is the highest since 2000. Ports have hit records in the first quarter. Tourism revenues increased 13%. The public accounts deficit stands at 2.1%, the lowest figure in the 43 years of democracy.

Does this show that everything is okay? That all the problems of the country are solved? Of course not. The data for the first quarter of 2017 are positive (surprisingly positive, even), they represent a good sign, but they do not invalidate some caution. The challenges of our economy are many, and the dangers are lurking.

Therefore, the debt. Portugal remains in the forefront of the most indebted economies, with debt weighing 130% of the GDP. This level of indebtedness places Portugal in a very sensitive position, as it underlines our dependence on the outside world, in particular on the possible fluctuations of interest rates.

We know well that without investment there is no sustained growth, and the value of it is still far below of what would be recommended. Based on the year 2000, we are currently around 34% below that year, while the Euro Zone recorded a growth of 11%, and in the U.S. we saw a rise of 22%.

The Portuguese banking system still faces difficult days, with natural reflexes in the (in)capacity of financing the economy. The poor credit of Portuguese banks is among the highest in the European Union (19.5% against 5.1% of the average in the E.U. – percentage of bad credit over total credit).

The challenges are not obvious here. Structural reforms remain to be implemented. The weight of the state in the economy is still excessive, and the high tax burden is one of the most visible and most damaging consequences of our growth. Tax unpredictability and inefficiency of justice are also two structural problems that are slow to resolve and which clearly threaten our competitiveness.

As in everything in life, virtue is in balance. This does not mean that this balance should be exactly between the two extremes (optimistic and pessimistic). I believe that, and being tendentiously optimistic, the perfect cook should contain a greater portion of optimism, with a hint of pessimism in the mix, which would certainly give the ideal realism to the final result.

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer


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