Portuguese Recovery Meme

Surging Portugal Exports Led by Volkswagen Signaling a Recovery – Bloomberg.

This is my first Portuguese recovery meme article, and the writer follows the form to a tee.  Basically, a few anecdotes and economic statistics are presented without context to show that the country is recovering from the Eurocrisis.

The central theme of the piece is that rising exports are leading Portugal to an economic revival.  Examples of export success are given, and the writer evokes the old trade routes plied by Vasco de Gama, which is a nice touch.  A source even claims that Portugal was the first global economy.  This is not true, though it could claim the second spot.  Venice with its network of outposts and established trading routes with the Ottomans and Far East was the first global economic power.  The Portuguese overtook the Venetians by establishing a trading route around the Cape of Good Hope to the Indian Ocean.

Unfortunately, none of this changes the hard, biting reality of economic statistics.  Exports contribute about 40% to Portugal’s GDP.  This means that exports have to grow 1.5 times the decrease in consumer and government spending just to keep the economic in place.  That is asking too much of the new Atlantic Tiger:

Portugal GDP Performance

Not only does GDP continue to decrease amidst the rise in exports, the decline is accelerating.  Additionally, the export boom is unsustainable anyway, because 71% exports go to other Eurozone nations most of which are in recession including Spain, Portugal’s largest trading partner.

When exports level off, the country has little means to revive domestic demand.  Government spending cuts are causing a vicious multiplier effect throughout the economy resulting in falling consumption as evidenced in the chart above.

Moreover, Portuguese labor costs have declined a mere 6% since the start of the crisis but would have to fall another 25% to equal Germany’s productivity.  The decrease so far has caused a recession and record high unemployment, so it is unlikely that Portugal will be able to endure a further adjustment of the necessary magnitude.

For some reason, journalists writing these articles never consider a Eurozone exit, and ironically that is the only way to solve the Euro Crisis.  Remove the euro, remove the crisis.

The choices facing Portugal are grim.  It can either choose to remain in the euro and experience a lost decade or more in economic growth, or it can exit the euro, endure a one or two year depression that will wipe out citizens’ savings but at least resume growth with a devalued escudo.  As the Euro Crisis has shown, countries that remain within the Eurozone do not resume sustained growth, and this is what they ultimately need to put their fiscal houses in order.



7 thoughts on “Portuguese Recovery Meme

  1. If we go out of the euro we need good leadership. I don’t see any politicians capable of managing a euro exit. I belive people (not just on Portugal but other southern countries) will vote for someone for a euro exit if that person can assure them he will manage a ‘good’ euro exit.

  2. It does not surprise me that this “incite” comes from a Bloomberg article.

    In my opinion, after reading many months of Bloomberg articles, on almost
    a daily basis, I believe Bloomberg may intentionally places/publishes only hype and
    irrational exhuberance articles. Rarely do I find an article on Bloomberg with
    hard hitting facts/reality.

    This “opinion” began a few months ago, I was not looking for it, it just
    seemed every article I read was fluff. So I started reading more and more
    from environment to business to politic. They all appeared to me to be
    biased, fluff, some perhaps intentionally misleading.

    If I had to guess, Bloomberg is intentionally looking at the rose from afar
    and then widely proclaiming the fragrance, he ignores the drought,
    the wilting petals, and the thorns. And he may be doing so to steer
    the hype toward favoring his company and toward his investments.

    I give very little credence to anything published by Bloomberg.

    It is a shame as I used to hold him in high regard.


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s