PORTUGAL - IGCP€¦ · 27-01-2020 · Euro area Portugal Spain Italy 7,5 9,7 6,7 14,1 0 5 10 15 20 25 30 Euro Area Italy Portugal Spain. 1. Economic revitalization Stronger GDP

January 27, 2020

PORTUGAL

ECONOMICS & STATE FUNDING

Outline

2

1.

1. Economic revitalization

2. Stronger growth foundations

3. Private sector turnaround

4. Fiscal stabilization

5. Resilient public debt structure

6. Improving market conditions

1.

http://igcp-portal2/ED/Templates/Logotipos%20IGCP/Image%20Library/Apresentacoes/Armi11t.png


Clear economic revitalization, underpinned by structural reforms

Source: Eurostat

[Real GDP, YoY %]

Unemployment below pre-crisis level

[% labor force]

Source: Eurostat

Robust GDP growth, above 2% in 2018

3

1,9%

2,4%

2,4%

0,8%

-6%

-4%

-2%

0%

2%

4%

6%

2002 2004 2006 2008 2010 2012 2014 2016 2018

Euro area Portugal Spain Italy

7,5

9,7

6,7

14,1

0

5

10

15

20

25

30

Euro Area Italy Portugal Spain



Stronger GDP growth (1/2)

[GDP YoY % and pp] [Contributions to YoY real private consumption growth, %]

Source: Statistics Portugal

4

Sustainable domestic and external demand Improved confidence backs steady private consumption

1,9

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Private consumption Public consumption GFCF

Change in inventories Exports Imports

GDP

2,4

-8

-6

-4

-2

0

2

4

Final consumption expenditure of NPISH

Non-durable goods and services

Durable goods

Food and beverage products

Private Consumption




Stronger GDP growth (2/2)

Robust exports growth … … supported by a shift in investment pattern

[Contributions to YoY real Exports growth, %] [Contributions to YoY real GFCF growth, %]

Source: Statistics Portugal Source: Statistics Portugal

5

6,1

-24

-20

-16

-12

-8

-4

0

4

8

12

16

Other machinery and equipment Transport equipment

Construction Others

Gross fixed capital formation

2,4

-20

-15

-10

-5

0

5

10

15

Exports of services

Exports of mineral products

Exports of goods excluding mineral products

Exports of goods and services


Labor market supported by growth and reforms

Broad-based job creation

[% of total population] [Contributions to YoY employment growth, %]

6


Both employment and participation rates are up

Source: Statistics Portugal Source: Eurostat

[% of total population]

44

46

48

50

52

54

56

58

57,0

57,5

58,0

58,5

59,0

59,5

60,0Participation rate (% >Y15 population) (LHS)

Employment rate (%) - (> Y15) (RHS)

0,9

-6

-4

-2

0

2

4

6

Agriculture, forestry and fishingMining, manufacturing, electricity, water, gas and constructionServicesPublic administration and defenseTotal


-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

OthersRestaurant and hotelsTransport and communicationsHousing, water, electricity, gas and other fuelsFood, beverages, tobacco and narcoticsHICP

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

OthersRestaurant and hotelsTransport and communicationsHousing, water, electricity, gas and other fuelsFood, beverages, tobacco and narcoticsHICP

Inflation in Portugal remains below that of the Euro Area

Portugal’s inflation has been highly volatile… … and not so much in the Euro Area.

[Contributions to yoy HICP growth, %]

Source: Eurostat Source: Eurostat

7


[Contributions to yoy HICP growth, %]

HICP average (2019)0,3%

HICP average (2019)1,2%



Steady growth cycle based on balanced growth and employment creation

Main indicators for the Portuguese economy

Sources: Statistics Portugal, Ministry of Finance, Banco de Portugal, International Monetary Fund and European Commission 8

[YoY, %, unless otherwise stated]

2017 2018 2019 P 2020 P 2019 P 2020 P 2019 P 2020 P 2019 P 2020 P

Real GDP (yoy%) 3,5 2,4 1,9 1,9 2,0 1,7 1,9 1,6 2,0 1,7

Private Consumption 2,1 3,1 2,2 2,0 2,3 2,1 - - 2,3 2,0

Public Consumption 0,2 0,9 0,6 0,8 0,5 0,8 - - 0,8 0,8

GFCF 11,5 5,8 7,3 5,4 7,3 5,4 - - 6,5 4,8

Exports 8,4 3,8 2,5 3,2 2,8 2,6 4,0 4,0 2,7 2,7

Imports 8,1 5,8 5,2 4,4 5,4 4,6 5,9 5,5 4,6 3,9

Contributions to GDP growth (pp)

Domestic demand 3,3 3,2 3,0 2,4 - - - - 2,8 2,3

Net exports 0,2 -0,8 -1,1 -0,5 - - - - -0,8 -0,6

External sector (% GDP)

Current account 1,0 0,1 -0,7 -1,0 - - -0,6 -0,7 -0,4 -0,7

of which Goods and Services 1,0 0,1 -0,8 -1,3 -0,6 -1,2 - - -0,7 -1,2

Current and Capital account 1,8 1,2 0,5 0,2 0,4 0,7 - - 0,8 0,6

Unemployment (% labor force) 8,9 7,0 6,4 6,1 6,3 5,9 6,1 5,6 6,3 5,9

Prices (yoy%)

GDP deflator 1,5 1,6 1,5 1,4 - - 1,3 1,5 1,4 1,5

HICP 1,6 1,2 0,4 1,1 0,3 0,9 0,9 1,2 0,3 1,1

Macroeconomic Scenario

Statistics

Portugal

Dec-2019

International

Monetary Fund

Oct-2019

Banco de

Portugal

European

Commission

Nov-2019

Min Fin:

State Budget 2020

Dec-2019


Outline

9

1.







2.


Economic structure better adapted for sustainable recovery cycle, as exportsnow weigh more than 40% of GDP

GDP composition (current prices) GVA composition (current prices)

[% of GDP] [% of GVA]


10


5 4 3 2 2 2 2

1918

15 14 14 15 14

33

33 4 3 4

78

76 4 4 4

1919

1818 20 20 20

78

88

8 8 8

1413

15 1718 18 17

27 29 31 31 30 30 30

1995 2000 2005 2010 2015 2017 2018

Other services activities

Financial, insurance and realestate activities

Transportation and storage;information andcommunication

Wholesale and retail trade,repair of motor vehicles andmotorcycles; accommodationand food service activitiesConstruction

Energy, water supply andsewerage

Industry

Agriculture, forestry andfishing

65% 63% 64% 66% 66% 65% 65%

17% 19% 21% 21% 18% 17% 17%

23% 28% 23% 21%16% 17% 18%

27%28% 27% 30%

41% 43% 44%

-33%-39% -36% -38% -40% -42% -43%

-50%

-30%

-10%

10%

30%

50%

70%

90%

110%

130%

1995 2000 2005 2010 2015 2017 2018

Imports ofgoods andservices

Exports ofgoods andservices

Gross fixedcapitalformation

Consumptionexpenditure ofgeneralgovernment

Privateconsumptionexpenditure



Strong reversal of external imbalances based on structural dynamics…

From chronic external deficits to balance New composition of current and capital accounts

[% GDP] [12-month cumulative Current and Capital Account, EUR million]

11

Source: Eurostat Source: Banco de Portugal

20

25

30

35

40

45

-12

-10

-8

-6

-4

-2

0

2

4

19

99

Q3

20

00

Q3

20

01

Q3

20

02

Q3

20

03

Q3

20

04

Q3

20

05

Q3

20

06

Q3

20

07

Q3

20

08

Q3

20

09

Q3

20

10

Q3

20

11

Q3

20

12

Q3

20

13

Q3

20

14

Q3

20

15

Q3

20

16

Q3

20

17

Q3

20

18

Q3

20

19

Q3

Imports of goods and services (rhs)

Exports of goods and services (rhs)

External balance of goods and services

-40.000

-32.000

-24.000

-16.000

-8.000

0

8.000

16.000

24.000

32.000

Primary Income Secondary Income

Capital account Goods

Services Current and capital accounts


…buoyed by strong gains in exports’ market share


12

Significant gains in exports’ market share

[Index 2007Q1=100]

Source: OECD

[Labour cost index vs. Germany, 2001Q1=100]

Significant competitiveness gains since 2011

Source: Eurostat

85

90

95

100

105

110

115

120

Euro area (19 countries) Germany Portugal Spain Italy

80

90

100

110

120

130

Germany Italy Portugal Spain


Exports diversification improves resilience to external shocks

Broader sectoral diversification

[Goods exports by sector, %]


13



Geographical diversification sustaining exports growth

[Goods exports by destination, YoY 3mMA %]

4 4

6

7

3 45

65

19

14

20

5

78

12

8

4 3 4

6

10

12

15

5

7 8

12

8

3 3 35

9

14 14

Ch

em

ical

s (i

ncl

. Ph

arm

a.)

Pla

stic

s an

d R

ub

be

r

Bas

e M

eta

ls

Fish

, Fru

its,

Ve

g.,T

ob

aco

an

d W

ine

Min

era

l Pro

du

cts

Ce

me

nt,

Cer

amic

an

d G

lass

Wo

od

an

d C

ork

Foo

twar

e an

d o

ther

pro

du

cts

Pu

lp o

f W

oo

d a

nd

Pap

er

Text

ile P

rod

uct

s

Ve

hic

les

and

par

ts, A

ircr

aft

Elec

. an

d M

ec. M

ach

iner

y

2000 2010 2018

7,4

-10

-5

0

5

10

15

20

25

Germany Spain FranceUK Others Intra-EU USAfrica Others Extra-EU Exports


Increase in services exports’ weight led by tourism receipts

Weight of exports of services doubled since 2005 Greater diversity of countries of origin in tourism

[% GDP] [% of non-resident overnight stays by country of origin]

Source: Banco de Portugal Source: Statistics Portugal

14


3,9

%

4,0

%

4,4

%

4,1

%

4,5

%

4,5

%

4,3

%

4,0

%

4,1

%

3,9

%

4,0

%

4,2

%

4,2

%

3,9

%

4,2

%

4,6

%

5,1

%

5,4

%

6,0

%

6,4

%

6,8

% 7,8

%

8,2

%

7,0

%

7,2

%

7,7

%

7,3

% 7,9

%

7,8

%

7,6

%

7,4

%

7,8

%

7,7

%

8,8

% 9,6

%

9,9

%

9,2

%

9,6

%

11

,0% 11

,9% 13

,0%

13

,5%

14

,0%

14

,3% 15

,6%

16

,0%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Tourism and Travel Transportation Others Total Services

30,9%

23,3% 23,0% 23,3% 22,9% 20,8% 19,6% 19,4%

16,3%

13,9% 13,7% 14,1% 13,8%14,2%

13,3% 12,1%

11,4%

13,9%11,1% 10,7% 10,4%

9,3%10,3% 10,4%

4,7%

6,9%9,6% 10,0% 10,5%

9,6% 9,8% 9,4%

7,0%

7,8% 6,5% 6,3% 6,4%

5,8% 5,4%4,9%

1,7%

3,5%4,3% 3,8% 3,9%

5,2% 5,5%5,9%

3,0%3,7%

2,8% 3,1% 3,1%3,3% 3,4%

3,4%

2,4%2,4%

2,6% 2,9% 3,1%3,8% 4,7% 5,5%

22,5% 24,6% 26,5% 25,8% 25,7% 27,6% 28,1% 28,9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2014 2015 2016 2017 2018 Jan-Nov

UK Germany Spain France Netherlands Brazil Italy USA Others


Strong fixed investment growth despite subdued GFCF in construction

Construction gradually recovering

[GFCF in construction and excluding construction, 100=2000Q1]


15


Capacity utilization levels imply stronger investment

[Capacity utilization in manufacturing and NFC GFCF as % of GDP]

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

Capacity utilization (%, LHS) NFC GFCF (% of GDP, RHS)

30

50

70

90

110

130

150

2001Q3 2004Q3 2007Q3 2010Q3 2013Q3 2016Q3 2019Q3

GFCF in construction Total GFCF exc. Construction


Healthy acceleration of fixed investment

Increase in fixed investment despite debt reduction…

[NFC debt and NFC fixed investment as % of GDP]

Source: Statistics Portugal, ECB Source: Statistics Portugal

16


…while NFC savings rate remains well above pre-crisis

[NFC savings and investment as a % of GVA]

8%

9%

10%

11%

12%

13%

14%

15%

16%

75%

90%

105%

120%

135%

150%

165%

180%

195%

Sep

/01

Sep

/03

Sep

/05

Sep

/07

Sep

/09

Sep

/11

Sep

/13

Sep

/15

Sep

/17

Sep

/19

NFC debt/GDP (LHS) NFC Fixed investment % GDP (RHS)

5%

10%

15%

20%

25%

30%

35%

NFC - Investment rate NFC - Savings rate


Improved profitability and credit allocation

NFC profitability levels are being restored

[Return on equity and Fixed investment as a % of GVA]


17


Stabilization of loans to NFCs, with an upward trend in the food and accommodation sector[Loans to NFC, Index 100 = Jan 2008]

Source: Banco de Portugal

20

40

60

80

100

120

140

160

180

Manufacturing Construction

Trade Food and Accommodation

Real estate

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

NFC - Return on equity

NFC - Fixed investment (% of value added, RHS)


Outline

18

1.







3.


Portugal

228,1%

233,5%

180%

200%

220%

240%

260%

280%

300%

320%

Portugal Euro area


Improved profitability and balance sheet strengthening

19

[Net lending (+)/ Net borrowing (-) in % of GDP]

Consistent net lending positions…

[Private sector debt/GDP]

… leading to private sector deleveraging

Source: Statistics Portugal Source: ECB

Lowest since 2002Q4

-74.0 pp

-4,0

3,0

0,0

1,2

0,3

-8

-6

-4

-2

0

2

4

6

Non financialcorporations

Financialcorporations

Generalgovernment

Households Total economy

2013 2014 2015 2016 2017 2018 2019Q3


Households’ net financial position improving

Net worth is now above pre-crisis levels … … driven by deleveraging

[EUR billion]

Source: Banco de Portugal Source: ECB

20


[Debt/GDI; Non-consolidated; Nominal values]

93,6%

61,8%

86,9%

94,8%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

Portugal Spain Italy Germany Euro Area


Strengthening of corporates’ capital structure

Strong decline of debt stock

[Debt/GDP; Non-consolidated]

Source: ECB Source: Banco de Portugal

21


Improved solvency position

[Capital ratio = Equity/Assets]

133,3%128,6%

106,3%

91,2%

138,7%

60%

80%

100%

120%

140%

160%

180%

200%

Portugal Spain Italy Germany Euro Area

30%

31%

32%

33%

34%

35%

36%

37%

38%

39%



Deleveraging process results in declining loan stock and diminished new lendingoperations

Total loans declined sharply since 2011… …while new lending operations remain subdued

[Total loans to households and NFC, billion €] [New lending operations to households and NFC, billion €]

Source: Banco de Portugal Source: Banco de Portugal

22

0

50.000

100.000

150.000

200.000

250.000

300.000

Oct

/03

Oct

/04

Oct

/05

Oct

/06

Oct

/07

Oct

/08

Oct

/09

Oct

/10

Oct

/11

Oct

/12

Oct

/13

Oct

/14

Oct

/15

Oct

/16

Oct

/17

Oct

/18

Oct

/19

Households (mortgage + consumption) NFC Total loans

0

2.000

4.000

6.000

8.000

10.000

12.000

Oct

/03

Oct

/04

Oct

/05

Oct

/06

Oct

/07

Oct

/08

Oct

/09

Oct

/10

Oct

/11

Oct

/12

Oct

/13

Oct

/14

Oct

/15

Oct

/16

Oct

/17

Oct

/18

Oct

/19

Households (mortgage + consumption) NFC Total


150,6

135,0

122,5

111,7

102,0

96,1 95,5

92,5

89,0

80

90

100

110

120

130

140

150

160

2010 2011 2012 2013 2014 2015 2016 2017 2018

7,4

8,7

11,5

12,2

11,3

12,4

11,4

13,9

13,2

5,0

6,0

7,0

8,0

9,0

10,0

11,0

12,0

13,0

14,0

2010 2011 2012 2013 2014 2015 2016 2017 2018


De-risking of the banks’ capital structure …

23

[Loans to Deposits Ratio, %]

More stable funding structure

[Core tier 1 | Common Equity tier 1, %]

Higher capital levels in a challenging context

Source: Banco de PortugalSource: Banco de Portugal

13,4 12,3 13,3 12,3

Total Capital Ratio

12,69,810,3

(*) Since Jan-2014 is in effect a new, transitory, regime of own funds adequacy, which takes into account Basel III phase-in arrangements.

15,2 15,2


… with increased resilience of major Portuguese banks

24

• The 2nd stage of CGD’s recapitalization was concluded inMar-17, with issuance of € 0.5bn of subordinated bondsand State capital injection of € 2.5bn.

CGD

• NB bought back senior bonds maturing between 2019and 2052, ensuring a capital increase of € 500mn.

• A 75% stake in NB was sold to Lone Star, resulting in animmediate capital injection of € 750 mn (and anadditional € 250mn by the end of 2017). The ResolutionFund retains 25% of the capital.

• The Resolution Fund made the following payments to NBunder the CCA: € 792mn in 2018; € 1,149 mn in 2019.

Novo Banco

BCP

• Capital increase of € 1.33bn finalized in Feb-2017, whichallowed the reimbursement of the remaining € 700mn ofCoCos

• Following the capital increase, Fosun share reached 23.5%

BPI• The removal of the voting rights limit opened the door for

a successful public offer by CaixaBank, finalized in Feb-2017, which increased its share to over 84.5%.

EUR million 2016 2017 2018 2019Q3

Net income -1.859,5 51,9 496 640,9 +74%

Net interestincome

1.197,3 1.241,4 1.204,8 872,9 +194%

EUR million 2016 2017 2018 2019Q3

Net income -788,3 -2.298.0 -1.412,6 -172,2 +8,6%

Net interestincome

529,1 403,7 454,3 139,2 +41%

EUR million 2016 2017 2018 2019Q3

Net income 23,9 186,4 301,1 101 -5,9%

Net interestincome

1.237,8 1.391,0 1.423,6 413 +13,1%

EUR million 2016 2017 2018 2019Q3

Net income 313,2 10,2 490,6 119,1 -26,9%

Net interestincome

372,2 388,1 422,6 122,6 +13,2%

Source: BPI, CGD, Novo Banco and BCP

2. Structural transformation

∆ 2018Q3

∆ 2018Q3

∆ 2018Q3

∆ 2018Q3


Banks dealing with legacy assets

NPL ratio is receding …

[% of gross credit; at end of period]

25


… as is the overdue credit ratio despite lower total loans

[Overdue credit ratio, YoY change in pp and contributions]

Source: Banco de Portugal

Prudentialsupervisory action

NPL management

Legal and judicial reform

National

authorities’

3-pillar strategy

to reduce NPLs:

[+ EU-level action]

-3,5

-2,5

-1,5

-0,5

0,5

1,5

2,5

Mixed EffectsEffects of change in total loans (denominator)Effects of change in overdue loans (numerator)Total effect

7,4

7,2

7,1

7,0

6,7

6,5

6,2

5,7

5,3

4,9

4,6

3,7

3,5

3,2

2,8

20,0

19,0

18,4

16,2

15,5

15,0

14,5

13,1

12,5

12,6

11,6

10,6

9,8

8,9

8,2

29

,3 30

,3

30

,1

29

,5

28

,9

27

,5

26

,6

25

,2

23

,8

22

,3

22

,1

18,5

17,6

16,6

15,7

17,9 17,9 17,6 17,216,3

15,414,4

13,312,7

11,7 11,3

9,4 8,98,3

7,7

0

5

10

15

20

25

30

35

2016 Q1 2016 Q3 2017 Q1 2017 Q3 2018 Q1 2018 Q3 2019 Q1 2019 Q3

Housing Consumption Non-financial corporations Total


Outline

26

1.







4.


2,9

-10

-8

-6

-4

-2

0

2

4

6

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Euro area Spain Italy Portugal

122,2

30

50

70

90

110

130

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Euro area Spain Portugal Italy

EC

projections

EC

projections


Fiscal discipline has stabilized debt levels throughout economic and politicalcycles

27

[% of GDP]

Strong primary surplus …

[EDP gross debt, % of GDP]

… supporting public debt decline

Source: European Commission, November 2019 Source: European Commission, November 2019



Source: Statistics Portugal and Ministry of Finance Source: European Commission, November 2019

28

Lowest deficits in over 40 years

Structural adjustment

[% GDP][Total revenue, total spending and overall balance; % GDP]

Significant reduction of expenditure

Note: NB, Banif and CGD impacts occur in 2014, 2015, 2017, 2018

-11,4

-8,5

-7,7

-6,7

-6,2

-3,8

-5,1

-3,2

-7,4

-1,6

-4,4

-2,0-1,9-1,7

-3,0

-1,4

-0,4 -0,6

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

Overall GG Balance Structural overall GG balance

2010 2011 2012 2013 2014 2015 2016 2017 2018

38%

40%

42%

44%

46%

48%

50%

52%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2010 2012 2014 2016 2018

Total revenue (RHS)

Total expenditure excl NB, Banif and CGD (RHS)

Overall balance excl NB, Banif and CGD


Fiscal consolidation through a strong improvement of the primary surplus anddeclining interest costs

General Government Accounts

[% GDP]

Source: Statistics Portugal and Ministry of Finance29


Notes: Figures for 2010-2018 reflect the new series of the Portuguese National Accounts (benchmark year 2016), as published by Statistics Portugal from 23September 2019. Estimates for 2019-2020 refer to the State Budget 2020

(% GDP) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 P 2020 P

Total revenue 40,5% 42,4% 42,7% 44,8% 44,4% 43,8% 42,9% 42,4% 43,0% 43,3% 43,8%

Current revenue 39,4% 41,5% 41,1% 44,0% 43,7% 43,0% 42,3% 42,0% 42,6% 42,9% 43,3%

Current taxes on income and wealth 8,4% 9,4% 8,9% 11,3% 10,9% 10,7% 10,1% 9,9% 10,1% 9,9% 9,9%

Taxes on production and imports 13,2% 13,8% 13,8% 13,7% 14,2% 14,6% 14,7% 14,9% 15,2% 15,2% 15,2%

Social contributions 11,9% 12,0% 11,4% 12,0% 11,8% 11,6% 11,6% 11,6% 11,7% 12,0% 12,1%

Other revenue 5,9% 6,2% 7,0% 7,0% 6,8% 6,2% 5,9% 5,7% 5,6% 5,8% 6,1%

Capital revenue 1,1% 0,9% 1,6% 0,9% 0,7% 0,8% 0,6% 0,4% 0,4% 0,4% 0,5%

Total expenditure excl CGD 51,9% 50,0% 48,9% 49,9% 51,7% 48,2% 44,8% 43,4% 43,5% 43,4% 43,5%

Current expenditure 44,7% 45,7% 45,3% 46,7% 45,6% 44,0% 42,8% 41,0% 40,4% 40,4% 40,2%

Social benefits 18,8% 19,2% 19,8% 20,6% 19,9% 19,5% 19,0% 18,4% 18,2% 18,4% 18,3%

Compensation of employees 13,7% 12,8% 11,7% 12,5% 11,8% 11,3% 11,2% 10,9% 10,7% 10,8% 10,8%

Interest (EDP) 2,9% 4,3% 4,9% 4,8% 4,9% 4,6% 4,1% 3,8% 3,4% 3,1% 2,9%

Intermediate consumption 5,9% 6,0% 5,7% 5,6% 5,7% 5,6% 5,5% 5,4% 5,4% 5,3% 5,3%

Subsidies 0,7% 0,7% 0,6% 0,6% 0,7% 0,6% 0,5% 0,4% 0,4% 0,4% 0,4%

Other current expenditure 2,6% 2,7% 2,6% 2,6% 2,6% 2,4% 2,4% 2,1% 2,3% 2,4% 2,4%

Capital expenditure excl CGD 7,2% 4,4% 3,6% 3,2% 6,1% 4,3% 2,0% 2,3% 3,1% 3,0% 3,3%

Gross fixed capital formation 5,3% 3,5% 2,5% 2,2% 2,0% 2,3% 1,5% 1,8% 1,9% 2,0% 2,3%

Other capital expenditure excl CGD 1,8% 0,9% 1,0% 0,9% 4,1% 1,9% 0,4% 0,6% 1,2% 1,0% 1,0%

Overall balance excl CGD -11,4% -7,7% -6,2% -5,1% -7,4% -4,4% -1,9% -0,9% -0,4% -0,1% 0,2%

Memo items

Primary expenditure excl CGD 49,0% 45,7% 44,0% 45,1% 46,9% 43,7% 40,6% 39,6% 40,1% 40,3% 40,6%

Primary balance excl CGD -8,5% -3,3% -1,3% -0,3% -2,5% 0,1% 2,3% 2,8% 2,9% 3,0% 3,2%

Overall balance -11,4% -7,7% -6,2% -5,1% -7,4% -4,4% -1,9% -3,0% -0,4% -0,1% 0,2%

Primary balance -8,5% -3,3% -1,3% -0,3% -2,5% 0,1% 2,3% 0,8% 2,9% 3,0% 3,2%

General Government Account (accrual basis)


Public debt to decline

Public debt downward trend …

[Maastricht debt, % GDP]

30

Decomposition of public debt dynamics[pp GDP]

… is supported by strong primary surpluses and decreasing interest costs


Assumptions for public debt dynamics

YEAR 2017 2018 2019 P 2020 P

Real growth rate (yoy%) 3,5 2,4 1,9 1,9

GDP deflator (yoy%) 1,5 1,6 1,5 1,4

Overall balance (%GDP) -3,0 -0,4 -0,1 0,2

Primary balance (%GDP) 0,8 2,9 3,0 3,2

Interest costs (%GDP) 3,8 3,4 3,1 2,9

YEAR 2017 2018 2019 P 2020 P

Maastricht debt (% GDP) 126,0 122,2 118,9 116,2

Change (pp GDP) -5,4 -3,8 -3,3 -2,7

Primary balance effect -0,8 -2,9 -3,0 -3,2

Snowball effect -2,6 -1,5 -0,9 -0,9

Interest costs 3,8 3,4 3,1 2,9

Nominal GDP -6,3 -4,9 -4,0 -3,8

Other stock-flow adjustments -2,0 0,6 0,6 1,3

ProjectionsState Budget

2020

Source: Statistics Portugal and Ministry of Finance

103,9

117,1 118,9 120,7 121,1 119,4115,9 114,0

111,5109,2

10,5

11,912,5

12,3 10,1 12,0

10,1

8,2

7,36,9

114,4

129,0131,4

132,9131,2 131,5

126,0

122,2

118,9116,2

80

90

100

110

120

130

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GenGov Deposits

GenGov Debt net of GenGov Deposits

GenGov Gross Debt


Outline

31

1.







5.



A significant improvement in the debt structure is a key source of resilience

32

One of the longest average maturities …

[Years]

Source: IGCP

… with a declining implicit interest rate

[%]

Source: IGCP

4,5

5,8

4,24,4

3,7

2,7 2,82,6

1,8

1,1

3,5

4,13,9

3,6 3,63,4 3,2

3,02,8

0

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Custo da dívida emitida / Cost of Issuance per year

Custo do stock da dívida / Cost of Debt Outstanding

5,3 5,1

5,5

6,7 6,5 6,4 6,2 6,2

6,9

8,2 8,2

8,87,8

8,17,5

3,0

6,0

9,6

12,1

8,8

7,8

10,310,7

0

1

2

3

4

5

6

7

8

9

10

11

12

13

dez/11 dez/12 dez/13 dez/14 dez/15 dez/16 dez/17 dez/18 dez/19

Average residual maturity excl EU-IMF loansAverage residual maturityAverage maturity of MLT debt issuance in each year


Prudent and stable funding plan

State’s borrowing needs and sources 2017-2023

[EUR billion]

33


Source: IGCP and Ministry of Finance

(a) State sub-sector cash deficit in 2017-20. Projection for GG deficit (adjusted) in 2021-23 (Stability Programme, Apr 2019).(b) Includes refinancing of other public entities (namely SOEs) and credit lines to the Single Resolution Board and the National Resolution Fund.(c) Includes other operations that impact net financing needs (e.g. bank recapitalization in 2012-2013, privatization revenues).(d) Includes net impact of exchange offers.(e) Includes centralization of funds of other public entities in the Single Treasury Account.(f) Excluding cash-collateral.

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

State borrowing requirements 28,3 20,3 19,4 17,6 17,4 18,3 15,6

Net financing needs 10,4 7,3 9,8 9,6 4,2 3,3 3,2Overall deficit (a) 4,8 3,7 4,2 5,9 0,9 1,8 2,1Net acquisitions of financial assets (b) 5,2 3,7 5,6 3,7 3,3 1,5 1,1One-off operations (c) 0,4

MLT Redemptions 17,9 13,0 9,7 8,0 13,2 15,0 12,4Tbonds (PGB + MTN) (d) 7,9 7,5 7,7 8,0 9,8 11,0 12,4FRN/OTRV 3,5 3,5EU/IMF (executed) 10,0 5,5 2,0EU/IMF (to be executed) 0,5

State financing sources 28,3 20,3 19,4 17,6 17,4 18,3 15,6

Use of deposits 0,4 0,5 2,5 -2,1 1,9 2,5 -0,1

Financing in the year 27,9 19,9 16,9 19,7 15,5 15,8 15,7Executed 27,9 19,9 15,0 2,9

Tbonds (PGB + MTN) 15,1 16,4 15,7 4,0FRN/OTRV 3,5 1,0Retail debt (net) 2,8 1,3 0,8Tbills (net) 0,3 -1,8 -1,4 -1,0Other flows (net) (e) 6,2 2,9

To be executed 1,9 16,7 15,5 15,8 15,7Tbonds (PGB + MTN) 12,7FRN/OTRVRetail debt (net) 0,1Tbills (net) 2,4Other flows (net) (e) 1,9 1,5

State Treasury cash position at year-end (f) 9,8 9,3 6,8 8,9 7,0 4,5 4,5


Regular issuance of MLT debt through different channels and across the curve

Auctions regain the main role in the annual funding plan Supporting liquidity in different points of the curve

[MLT debt issuance per method of issuance; EUR billion] [MLT debt issuance per bucket; EUR billion]

Source: IGCP Source: IGCP

34


12% 41%

45%

48%47%

25%

15%

37%

22%

77%

47%

20%

36%

45%

55%

47%

54%

100%

55%

9%

17%

5% 14%

10%24%

11%

12%

23%8%

16%

17%5%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 jan-dez2019

Syndications Auctions Exchanges MTN Issuance OTRV/FRN

21%51% 100%

22%

2%

25%

41% 53%

22%

9%

35%

44%

21%

8%

15%26%

10%

7%

7%

13%

38%

8%

25%

46%

46%

48%45%

52%

66%

7%

17%

19% 8%2%

19%20%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 jan-dez2019

<4[ [4-6[ [6-9[ [9-13[ >=13


The diversification of investors ensures a stable base of debt holders (1/2)

Progressively regaining traditional investors

Source: IGCP

35

Distribution by Geography Distribution by Investor Type


[Distribution by geography and investor type of 10-year syndications from 2010 to 2020]

2010

2013

2020

Asia

France

Germany/Austria/Switzerland

Nordics

North America

Other

Other Europe

Portugal

Spain

UK

2010

2013

2020

Asset Managers

Banks

Official Institutions

Hedge Funds

Insurance / Pension Funds

Others


[% of total State debt securities]


36


More diversified public debt composition

[EUR billion and % of total State debt]

Non-domestic holdings in line with EU peers

The diversification of investors ensures a stable base of debt holders (2/2)

25

35

45

55

65

75

85

Portugal Spain Italy

69%70% 59%

48% 45% 43%46% 47% 49% 51% 130,9

2%4%

6%6%

11%

13% 13%7% 9% 9%

7%7%

6%6%

6%

15%

13%11%

7% 6% 6%8%

9%10%

11%12%

0%21%

32%35%

36%

32%29%

24% 21%

133

152

175

194204

217226

236 238246 251

0

40

80

120

160

200

240

280

PGB Other MLT TbillsOther ST Retail EU-IMFOther non-tradable TOTAL


37

Liability management operations have smoothed the redemption profile

[Redemption calendar debt; December-2019+ rollover EFSM; EUR billion]

Source: IGCP

Maturity profile spread over a long time span


IGCP is actively buying back off-the-run PGBs

EU-IMF loans are being paid ahead of schedule

IMF loan was fully repaid by December 2018

Security Outright buyback(EUR million)

Exchangebought

(EUR million)sold

TOTAL 2018 878 1,906 1,906

Source: IGCP

Date SDR million EUR million2015 6,579 8,4482016 3,560 4,4962017 8,232 10,0132018 4,571 5,515

TOTAL 22,942 28,472

OT Jun 2020 - 958 -OT Apr 2021 - 2,462 -OT Oct 2022 - 350 -OT Oct 2023 - - 350OT Jul 2026 - - 1,063OT Apr 2027 - - 560OT Oct 2028 - - 1,178OT Feb 2030 - - 619

TOTAL 2019 - 3,770 3,770

EUR 2 billion were paid to the EFSF in October 2019

Date EUR million2019 EFSF 2,000

TOTAL EU loans 2,000

0

3

6

9

12

15

18

21

2020 2024 2028 2032 2036 2040 2044 2048

BT / Tbills

FEEF / EFSF

MEEF / EFSM

MEEF (maturidade final a confirmar) / EFSM(final maturity to be confirmed)

Outra dívida de médio e longo prazo / Othermedium and long term debt


Outline

38

1.







6.



Sizable decline in funding costs and in risk premium

Portuguese yields declined sharply in all maturities… …prompting a convergence with other EA issuers

[Secondary market yields, %] [10-yr secondary market yields, %]

Source: Bloomberg Source: Bloomberg

39

-100

0

100

200

300

400

500

PT IT SP FR GE

-100

0

100

200

300

400

500

600

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

2y 5y 10y 30y



ECB resumed its monthly net purchases of public sector securities in November, while continuing toreinvest the principal payments from maturing securities held in the PSPP portfolio

ECB PGB purchases under PSPP

[EUR billion]

Source: ECB40

-60

-30

0

30

60

90

120

-1,2

-0,6

0,0

0,6

1,2

1,8

2,4

PSPP purchases with capital key PSPP actual purchases

PSPP reinvestments (net) Target APP Purchases (RHS)

Re

inve

stm

ent

ph

ase


0

500

1.000

1.500

2.000

2.500

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Over-the-counter OT Platforms OT OT 12M Moving Average


Average daily turnover increased in 2018 and 2019 and bid-offer spreadsimproved significantly

Average daily turnover increased … … while bid-offer spreads improved significantly

[EUR million] [price ticks; 1M moving average]


41

0

20

40

60

80

100

120

140

160

Feb

/15

May

/15

Au

g/1

5

No

v/1

5

Feb

/16

May

/16

Au

g/1

6

No

v/1

6

Feb

/17

May

/17

Au

g/1

7

No

v/1

7

Feb

/18

May

/18

Au

g/1

8

No

v/1

8

Feb

/19

May

/19

Au

g/1

9

No

v/1

9

10Y 5Y



The most buyer investors in 2019 were Banks and Fund Managers

Net flows of end-investors by investors’ type

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-2015]

Source: HRF Reports

42

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

8.000

10.000

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Banks Central Bank & Other Public Entity Pension Fund Insurance Company Fund Manager Hedge Fund Retail


A positive contribution to net purchases from France and UK in 2019

43

Net flows of end-investors by region (top 5)

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15] [EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15]

Net flows of end-investors by region


Source: HRF Reports

-4.000

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

De

c-1

8

Mar

-19

Jun

-19

Sep

-19

Spain Other EU France Portugal UK

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

De

c-1

8

Mar

-19

Jun

-19

Sep

-19

Germany/Austria/Swit North AmericaAsia BeneluxOther Nordics



Rating upgrades unravel a new paradigm, as Portugal reenters main benchmarkindexes

2020 rating decisions

[Rating calendar in 2020]

Source: S&P, Fitch, Moody’s and DBRS

44

DBRS

BBB (high) / Stable

Fitch

BBB / Positive

Moody’s

Baa3 / Positive

S&P

BBB / Positive

Aug-201909/08

(Positive)

Sep-201913/09

(Positive)

Oct-201904/10

(BBB to BBB(high))

Nov-201922/11

(Affirmed)

Jan-2020 17/01

Mar-2020 20/03 13/03

May-2020 22/05

Jul-2020 17/07

Sep-2020 18/09 11/09

Nov-2020 20/11


Appendix

45

A. Macroeconomic indicators

B. Structural reforms

C. Fiscal indicators


Positive medium and long-term trend in soft and hard data economic indicators,despite some recent volatility and deceleration

Coincident indicators and real GDP Retail sales and Industrial production

[yoy %] [3 month average, YoY%]

Source: Banco de Portugal, Statistics Portugal Source: Statistics Portugal

46


-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Industrial Production Retail Sales-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

GDP (YoY, %)Monthly coincident indicator for economic activityMonthly coincident indicator for private consumption


Both headline and core inflation in Portugal are below that of the Euro Area

HICP Core HICP

[Year-on-year growth, %] [Year-on-year growth; %]


47


1,3

0,4

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

Diff Euro area (19 countries) Portugal

1,3

0,4

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

Diff Euro area (19 countries) Portugal



Broad economic recovery

Most sectors have now closed the gap vs. Jun-2011

[Employment change vs. level in Jun-2011, thousands]


48

[GVA YoY% and pp]

Cross-cut recovery in sectoral terms

83

,6

81

,4

61

,5

58

,6

48

,6

38

,4

30

,2

28

,7

28

,1

25

,4

22

,7

20

,5

18

,5

10

,9

8,6

-2,6

-3,6

-3,9

-21

,8

-139

,6

-227

,9

(Net

) to

tal

Hea

lth

& s

oci

al w

ork

Man

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ctu

rin

g

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on

Info

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& c

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Co

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cy, s

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c &

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ical

act

ivit

ies

Pu

blic

ad

min

istr

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n a

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def

ence

Ad

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e &

su

pp

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Tran

spo

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& s

tora

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Acc

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& f

oo

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Rea

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Oth

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Art

s, e

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sp

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re

crea

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Wat

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olle

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reat

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t an

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ibu

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ewer

age,

…

Wh

ole

sale

& r

etai

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de

Fin

anci

al a

nd

insu

ran

ce a

ctiv

itie

s

Min

ing

and

qu

arry

ing

Elec

tric

ity,

gas

, ste

am, w

ater

an

d c

old

air

Act

ivit

ies

of

ho

use

ho

lds

as e

mp

loye

rs

Co

nst

ruct

ion

Agr

icu

ltu

re, f

arm

ing

of

anim

als,

hu

nti

ng

and

fo

rest

ry

1,6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Manufacturing Wholesale and retail trade

Construction Other sectors

GVA


100%-10,7%

-8,0%

-7,7%

-7,4%

-5,4%

-4,2%-4,2%

-3,6%-2,2%

-1,6% -1,1% 44%

Dec

-08

Man

ufa

ctu

rin

g, M

inin

g an

d q

uar

ryin

g

Elec

tric

ity,

gas

, wat

er

Wh

ole

sale

an

d r

etai

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de

, re

pai

r o

fve

hic

les

Tech

nic

al, c

on

sult

ancy

an

d o

ther

act

ivit

ies

Tran

spo

rtat

ion

an

d s

tora

ge

Co

nst

ruct

ion

Rea

l est

ate

Acc

om

mo

dat

ion

, Fo

od

an

d b

eve

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Edu

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, he

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d o

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Info

rmat

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Agr

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Dec

-12

Fixed investment bounced back in almost all sectors, after a widespreadcontraction between 2008-2012

NFC investment declined sharply until 2012… … and has shown signs of broad recovery ever since

[GFCF; current prices; 100=2008] [GFCF; current prices; 100=2008]

Source: Statistics Portugal 49


44% -1,4%0,3% 0,7%

77%

1,2% 1,5%2,2% 2,9%

3,8%

4,8%

6,6%

9,8%

Dec

-12

Elec

tric

ity,

gas

, wat

er

Co

nst

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Info

rmat

ion

an

d c

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Tran

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Agr

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Acc

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, Fo

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Tech

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an

d o

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act

ivit

ies

Man

ufa

ctu

rin

g, M

inin

g an

d q

uar

ryin

g

Dec

-17


Revamp in real estate based on a less debt-driven demand

Prices reflect the increase in demand Market is starting to show some overvaluation in PT

[Current prices; 100=2015; M€] [Average valuation of residential property vs. equilibrium]

Source: ECB50



Un

de

rval

ue

dO

verv

alu

ed

1 000

2 000

3 000

4 000

5 000

6 000

7 000

-15

-10

-5

0

5

10

15

20

10Q

3

20

11Q

1

20

11Q

3

20

12Q

1

20

12Q

3

20

13Q

1

20

13Q

3

20

14Q

1

20

14Q

3

20

15Q

1

20

15Q

3

20

16Q

1

20

16Q

3

20

17Q

1

20

17Q

3

20

18Q

1

20

18Q

3

20

19Q

1

20

19Q

3

Existing home sales New home sales

Home price index_total (YoY, %) Home price index_existing (YoY, %)

Home price index_new (YoY, %)

-20

-15

-10

-5

0

5

10

15

Portugal Euro Area



Improving net external debt position

Balanced external position … … leading to gradual improvement in NIIP

[Current account, % GDP: 4QMA] [Net International Investment Position, % GDP]

51


-0,8

1,7

2,7

-14

-12

-10

-8

-6

-4

-2

0

2

4

Portugal Spain Italy

-140

-120

-100

-80

-60

-40

-20

0


Well diversified exports distribution, with limited sectoral or geographicalconcentration

Portuguese goods exports by major destination and sector

[% total exports by destination and sector; YTD Jan-Nov 2019]


52


Others WORLD

Vehicles and parts, Aircraft 3,71 2,83 3,01 1,29 0,11 1,12 0,32 0,31 0,05 0,27 3,31 16,3

Elec. and Mec. Machinery 2,41 1,45 3,29 1,07 0,47 0,41 0,29 0,25 0,55 0,26 3,51 14,0

Textile Products 2,73 1,13 0,74 0,66 0,56 0,55 0,38 0,16 0,06 0,07 1,78 8,8

Base Metals 2,65 1,36 0,52 0,47 0,32 0,08 0,16 0,16 0,20 0,06 1,57 7,6

Mineral products 1,33 0,27 0,07 0,09 1,19 0,04 0,50 0,30 0,03 0,00 3,26 7,1

Plastics and Rubber 2,17 0,88 0,83 0,35 0,31 0,27 0,41 0,22 0,12 0,11 1,43 7,1

Prep. Food, Beverages and

Tobaco1,12 0,34 0,61 0,31 0,35 0,22 0,24 0,28 0,24 0,06 1,74 5,5

Chemicals (incl. Pharma.) 1,53 0,68 0,18 0,40 0,23 0,52 0,14 0,15 0,22 0,08 1,46 5,6

Pulp of Wood and Paper 1,05 0,47 0,40 0,25 0,19 0,24 0,28 0,05 0,08 0,13 1,29 4,4

Footware 0,32 0,70 0,57 0,20 0,16 0,09 0,43 0,07 0,02 0,04 0,65 3,2

Others 5,76 2,98 1,91 1,05 1,09 0,96 0,73 0,39 0,53 0,24 4,78 20,4

TOTAL 24,8 13,1 12,1 6,1 5,0 4,5 3,9 2,3 2,1 1,3 24,8 100


Exports growth based on geographical and sectoral contributors

Major sector and country contributions

[YoY % and contributions, YTD Jan-Nov 2019]


53


Germany France Italy Netherlands Spain United StatesUnited Kingdom Brazil Angola Others WORLD

Vehicles and parts, AircraftV

e0,73% 0,30% 0,31% 0,07% 0,54% -0,09% 0,15% -0,01% -0,01% 0,75% 2,73%

Optical / medical / precision

instr.

O

p0,36% 0,03% 0,01% 0,01% -0,01% 0,06% 0,02% 0,00% -0,01% 0,13% 0,60%

Vegetable ProductsV

e0,03% 0,07% 0,01% 0,05% 0,01% 0,00% 0,01% 0,01% -0,01% 0,01% 0,20%

Prep. Food, Beverages and

Tobaco

P

r-0,01% 0,06% 0,06% 0,01% -0,01% 0,03% 0,02% 0,01% -0,06% 0,03% 0,13%

Manufactured ProductsM

i0,07% 0,07% 0,00% 0,01% 0,05% 0,02% -0,02% 0,00% -0,03% -0,04% 0,12%

Animal ProductsL

i0,00% 0,01% -0,02% 0,00% 0,03% 0,00% 0,00% 0,03% -0,05% 0,07% 0,07%

Textile ProductsT

e-0,03% 0,03% 0,00% 0,02% -0,15% 0,03% -0,01% 0,00% 0,00% 0,02% -0,09%

Plastics and RubberP

l-0,08% 0,02% -0,02% 0,00% -0,03% 0,07% -0,03% -0,03% -0,04% 0,04% -0,10%

Base MetalsB

a-0,07% 0,07% 0,00% -0,01% -0,18% 0,07% -0,04% -0,01% -0,03% 0,03% -0,16%

FootwareF

o-0,06% -0,01% -0,01% -0,03% -0,03% 0,04% -0,02% 0,00% -0,01% -0,05% -0,17%

Mineral productsM

i0,00% 0,10% -0,03% 0,05% -0,69% -0,08% 0,01% -0,07% -0,01% -0,14% -0,86%

Others 0,00% 0,07% 0,22% 0,03% 0,65% 0,05% -0,11% 0,02% -0,23% 0,34% 1,04%

TOTAL Total 0,94% 0,82% 0,51% 0,22% 0,20% 0,19% -0,01% -0,07% -0,48% 1,19% 3,51%


Productivity gains leading to higher competitiveness

Labor productivity: positive medium-term trend ULC: still below Euro Area figures

[2010 = 100] [2001 Q1 = 100; 12m MA]

Source: Eurostat Source: ECB

54


90

92

94

96

98

100

102

104

106

108

110

Euro area (19 countries) Spain Italy Portugal

90

100

110

120

130

140

150

20

01

Q3

20

02

Q3

20

03

Q4

20

04

Q4

20

05

Q4

20

07

Q1

20

08

Q1

20

09

Q3

20

10

Q3

20

11

Q3

20

12

Q3

20

13

Q3

20

14

Q3

20

15

Q3

20

16

Q3

20

17

Q3

20

18

Q3

20

19

Q3

Spain Italy Portugal Euro Area


Appendix

55


B. Structural indicators



Structural reforms key to sustain a balanced growth environment

56

What has been achieved: Underway:


• Improved efficiency of credit allocation by banks

• Resolution Fund: State loan extended for up to 30y, with maturity contingent on final outstanding amount (after NB sale)

Financial sector

• Social Security reform

• Improved effectiveness: reduction of civil servants (-10% since 2011) and SOEs restructuring

• Simplified tax compliance + reduced fraud and fiscal evasion

• New Budgetary Framework Law

• Privatization program

• Judicial system reform

Public sector

• Reduced firms’ administrative burden (e.g. licensing)

• Lower costs of context (e.g. communications, railways, ports)

• Rental market reform

Product market

• Reduced severance payments and unemployment benefits

• More flexible working arrangements

Labor market

• Program Capitalizar: promote reduction of indebtedness levels and increase capital holdings

• Initiative Indústria 4.0: designed to revitalize most traditional sectors (agroindustry, auto, fashion, retail and tourism)

• Program Semente: new fiscal framework to promote Start Up investment

Corporate sector

• Program Simplex+: improve efficient use of public resourcesand simplify administrative burden

• Spending review focused on: (i) health and education sectors; (ii) procurement; (iii) real estate; and (iv) SOEs

• Automatic income declaration for Personal Income Tax

Public sector

• NPLs: working group preparing measures to facilitate debt restructuring, including fiscal treatment of write-offs

• Improve efficiency of insolvency and debt restructuring frameworks

Financial sector



Labor market reforms

57

(1) Unemployment benefit has been extended to certain self employed categories (+80% of wage needs to come from one employer )

Unemployment Benefits

Capped at:

26 months (38 months before)

2.5x IAS (3xIAS before) with 10% reduction after 6 months

Min. contribution period 12 months (15 before)

Extension to self employed (1)

Reduce risk of long term unemployment

Encourage earlier return to labor market

Reduce contribution period that gives access unemployment

insurance

Severance Payment

12 days/year for new contracts;

18 days/year (old contracts first 3 years)

(30/36 days before)

Cap: 12 months

Improve efficiency and eliminate labor market duality

Working time Arrangements

Introduction of individual bank of hours, capped at 150 hours (vs. 200

before);

Collective bank of hours

Vacations up to 22 (vs 25 days )

Increase flexibility in production cycle;

Improve productivity;

Improve production capacity adjustment to peak periods

without increasing personnel costs



Hiring and firing is now easier and less costly

Source: World Economic Forum Source: World Economic Forum

58

Hiring and firing practices

[Index scale from 1 to7 (best)]

Redundancy costs[Cost of advance notice requirements, severance payments, and penalties due when terminating a redundant worker, expressed in weekly wages]

1

2

3

4

5

ITA FRA IRL GRC PRT GER ESP

2018 2008

0

10

20

30

40

50

60

70

80

90

100

GER IRL GRC FRA SVK ESP PRT

2018 2008


Appendix

59


B. Structural reforms



The overall balance of the GG on a cash basis stood at EUR -2,083 million in2018, improving by EUR 475 million vis-à-vis 2017

General Government (GG) balance

[EUR million; yoy change]

60



2018 budget execution (on cash basis)

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]

Source: Ministry of Finance

61Execution in 2018 2018 Budget target


Main contributions(p.p.) Main contributions (p.p.)


Up to November, the overall balance of the GG on a cash basis stood at EUR +546 million,improving by EUR 1,131 million vis-à-vis the same period last year

General Government (GG) balance

[EUR million; yoy change]

62


Source: Ministry of FinanceNote: 2018 annual balance updated with final data from Budget General Directorate.

7511.032

1.279

786

1.573

2.117 2.239

9821.231

726

1.131

24

1.542 1.301883

-1.259-637

-536 -445

402

2.542

998546

-2.217

791269

-395

-2.045 -2.210

-2.653 -2.684

-579

1.311

271

-585

-2.241

0

2.000

4.000

6.000

8.000

10.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019Target

yoy change (RHS) 2019 2018


Execution in 2019 2019 Budget target

2019 budget execution: January to November

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]

Source: Ministry of Finance

63


Main contributions (p.p.) Main contributions (p.p.)

Note: 2018 GG account updated with final data from Budget General Directorate.


164 158 154 149 147 147 149 157 159 159

13 12 12 11 10 10 10 11 11 11

551530 510 497

503507 510 516 521 520

728700

675656 659 664 669 684 691 690

Regional and Local Government Social Security Fund Central Government General Government

-5.2%

The number of civil servants declined by about 5% since Dec-11, putting a lid oncurrent expenditure

Number of civil servants[thousands]

Source: DGAEP

64




Average implicit interest rate anchored in historically low level, given therelatively long average maturity

Average maturity around 8 yearsDeclining implicit interest rate on State direct debt

[State direct debt after swaps; May-2019][%; Interest costs in t / Average debt stock at the end of t-1 and t]

Source: IGCP

Source: IGCP

65

EntityAmount

disbursed (EUR bn)

Estimated all in cost

Final average maturity from disbursement date (years)

EFSM 24.1 2.6% 19.5

EFSF 26.0 1.7% 20.8

Average cost of EU loans[Estimates; May-2019]

Outstanding (EUR bn)

Current average residual maturity

(years)

Final average residual maturity

(years)

EU 51.6 11.1 13.1

Other debt 199.9 6.3 6.3

Total 251.5 7.3 7.7

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

PGB 3.9% 3.5% 3.3% 2.9% 2.8% 2.9% 2.9%

Tbills -0.1% -0.3% -0.3% -0.2% 0.1% 0.3% 0.6%

Retail debt 2.8% 2.9% 2.7% 2.6% 2.5% 2.2% 2.3%

EU/IMF 2.5% 2.3% 2.2% 2.4% 2.2% 1.8% 1.7%

Total 3.0% 2.8% 2.7% 2.5% 2.4% 2.4% 2.4%

Source: IGCP


Web site: www.igcp.ptBloomberg pages: IGCPReuters pages: IGCP01

66

Disclaimer

The information and opinions contained in this presentation have been compiled or arrived at from sources believed to be reliable and ingood faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness.

All opinions and estimates contained in this document are published for the assistance of recipients, but are not to be relied upon asauthoritative or taken in substitution for the exercise of judgment by a recipient and, therefore, do not form the basis of any contract orcommitment whatsoever.

IGCP does not accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.


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PORTUGAL - IGCP€¦ · 27-01-2020 · Euro area Portugal Spain Italy 7,5 9,7 6,7 14,1 0 5 10 15 20 25 30 Euro Area Italy Portugal Spain. 1. Economic revitalization Stronger GDP