Fishing for positives in Portugal's economy

STORY HIGHLIGHTS

The Portuguese government has been unable to convince creditors to ease its deficit reductiontargets

Chinese fish demand has played a large part in Conserveira do Sul's turnaround

Creditors issued a statement which said that Portugal's bailout program "remains broadly on track

(CNN) -- Growing up in Lisbon, I was always pleased to tuck into the little fish pates offered as partof the entrees at my local restaurant. Little did I know, that many years later, this Portuguese stapleof sardines would become one of the hooks which would lift the Iberian nation out of recession.

In the second quarter of this year, Portugal's economy outperformed many other countries in theEuropean Union with growth of 1.1%, thanks in part to its exports, which rose by more than 5%.

But the export euphoria was short lived: many knew that behind those chunky fish fillets, Portugalhad some economic bones to swallow.

Fish canning factory Conserveira do Sul, is in many ways, an example of Portugal's economicsuccesses and failures. For more than 30 years, this family-run business in the south of the countryhas fought crisis after crisis.

As I get a tour of the factory, one of its co-owners, Jorge Ferreira, tells me the company has been in"pre-alert crisis since the 1970s"-- a time when the canned fish sector went into a deep crisis andmany factories closed.

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This time around however, the crisis has brought him a good economic catch. Ferreira says: "Ourproducts are low priced and they have been the option for many people who have had their wagesreduced, so in the last few years we have observed an increase in the quantity sold of our product."

In other words, the business is faring better as the Portuguese turn to a cheaper diet.

But the success of Conserveira do Sul, which produces 12 tons of fish every day, has more to thankthan just its domestic market.

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Chinese demand for the product, and two large distribution deals in China, have played a large partin their turnaround.

"The Chinese are looking for healthy and safe products... a safe process is very important to theChinese market because they are very aware of contamination problems, of pollution problems" saysFerreira.

To secure these key distribution deals, Jorge tells me he shows off the factory -- the canning process,the sterilization of the product and the fresh fish itself, which arrives at the port just outside thefactory door -- to Chinese distributors. It's a move that has brought work and deep sighs of relief toits employees, many of whom have been working here for years.

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Maria is one of them. She has been cleaning, gutting and canning fish since she was 13. She tells meshe has plenty of work. Inside the factory she cannot feel the crisis; outside however, it's a differentmatter.

Therein lays Portugal's economic predicament. While those traditional exports of fish and olive oiloffered a ray of hope in the second quarter, they were not the country's saving grace, with somearguing the numbers were simply an anomaly. The coalition government may have known that it wastoo early to call this a turnaround, because they did little to play off these numbers.

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Ricardo Marques, an economist at Informacao dos Mercados Financeiros, tells me over a coffee thatwe are "seeing an improvement in Portugal's economy but as long as austerity is being implementedthe people on the street will never feel the benefits".

There is certainly more austerity to come. The government of Prime Minister Pedro Passos Coelhohas been unable to persuade the International Monetary Fund, the European Commission and theEuropean Central Bank to ease the country's deficit target to 4.5% of GDP from the current 4% goal.

As a result the government is expected to reveal a new batch of austerity measures when itannounces its budget on October 15. These are expected to include more unpopular public sector

job cuts, cuts to pensions and benefits and plans to raise the retirement age to 66.

But this won't be easy.

There is a political crisis inside the governing coalition, the Constitutional Court has ruled four timesagainst the governments' plans to trim public sector pay and recently there were whispers of asecond bailout.

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The Troika, which was visiting the country when I was there, was quick to deny the murmurs ofanother crisis, issuing a statement which said that Portugal's bailout program "remains broadly ontrack, with the authorities determined to achieve its objectives."

There is no doubt that there's an improvement in the Portuguese economy. There are reasons to beoptimistic. But let's not start popping the champagne just yet. For now, pate and bread may be themost appropriate economic aperitif.