Portugal Sees Revival

Just six years after Portugal’s 2011 financial bailout sparked protests and sent the country’s young people abroad in search of work, the country is experiencing an economic revival.

Mario Mouraz was one of those who left Portugal looking for work. Now, after three years abroad, he’s back, selling his own software to Lisbon hotels in the middle of a tourist boom, NPR.org reported.

Mouraz, 28, is the co-founder and CEO of Climber Hotel, a tech startup that helps hotels maximize occupancy. He and his company are part of two new trends—fresh entrepreneurship and an uptick in tourism—that have fueled Portugal’s economic recovery.

“My friends, people I know, who were leaving the country more or less at the same time I did, in 2011 and 2012, a lot of them came back already or want to come back,” Mouraz says. “They come full of motivation, with knowledge from other countries and a different mindset.”

They are also finding jobs. Wages are up, and Portugal’s unemployment rate has dropped to around 10% from a high of nearly 18% in 2013.

 Austerity Not the Only Way

Portugal’s economy has rebounded dramatically since its $83 billion European Union bailout in 2011. What’s surprising is that this has happened without austerity measures—the spending cuts and tax hikes that Portugal’s creditors, the EU and International Monetary Fund, said were the only way to survive Europe’s debt crisis.

Such measures were initially imposed by Portugal’s then center-right government, on orders from the EU and IMF. But when a left-wing, Socialist-led coalition took power in November 2015 and began canceling austerity—raising wages and lowering taxes—many economists warned Portugal would need a second bailout.

But that has not happened. Instead, the economy has posted 13 consecutive quarters of growth—beginning under the previous government, and surging during the current one. Its budget deficit has hit a 40-year record low of 2.1% of GDP, the first time Portugal’s deficit has dropped below EU limits.

Leftists across Europe are applauding Portugal’s recovery as proof that austerity is not the only way out of economic distress.

“Europe chose the line of austerity and had much worse results,” Economy Minister Manuel Caldeira Cabral told NPR in an interview. “Economic growth was much slower, and the reduction of unemployment took much longer than in the US. What we are showing is that with a policy that restitutes income to the people in a moderate way, people get more confidence and investment returns.”

Some Portuguese economists remain skeptical. They say the left-wing government simply lucked out by being in office at a time when the country is seeing double-digit growth in tourism.

“They are surfing the wave, which is good! So far, so good,” says Lisbon-based economist Joao Duque. “But things may get worse in the medium and long term. We have several weaknesses, and they are not treating them.”

Aside from tourism, Portugal doesn’t export much besides vehicle parts, leather shoes and some other items. Public debt remains high. Most ratings agencies still classify Portuguese bonds as junk.

 Bright Outlook

Portugal’s central bank recently gave an upbeat assessment of the country’s economic outlook, with an export-driven recovery taking national output close to a pre-2008 level within two years.

The Bank of Portugal revised its economic forecasts upward. It now expects growth of 1.8% this year, 1.7% next and 1.6% in 2019.

Exports are seen surging 6% this year after a 4.4% increase last year, while unemployment is predicted to fall from 11.1% in 2016 to 7.9% in 2019. The jobless rate hit 16% in 2013, two years after Portugal needed a €78 billion ($84 billion) bailout.

Portugal’s budget deficit has also fallen to a 42-year low of 2.1%. However, the three main ratings agencies still classify Portuguese debt as junk.