Download Portugal: net lending remained positive, with looming risks

ECONOMIC AND FINANCIAL RESEARCH
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Portugal: net lending remained positive, with looming risks
April 2016
José Miguel Cerdeira
21 310 10 82
[email protected]
NET LENDING IN PORTUGAL HAS REMAINED POSITIVE, WITH LOOMING RISKS


In the last quarter of 2015, the net lending of the Portuguese economy remained positive, following
a recent trend which should prove important for the reduction of important resilient structural
imbalances still in existence. International trade numbers reveal also a surplus with the rest of the
world, although there are risks to the maintenance of this surplus. The level of savings of the economy
has increased, while the level of investment has decreased, allowing for the elimination of a gap
between those. Nevertheless, these levels have been only sustainable due to a significantly low
investment rate by companies, which could endanger growth in the medium-term. Household
spending has grown recently, but future growth is contingent on a continuing expansion of disposable
income, as the savings rate of families shrunk to strikingly low levels. The financial sector has had
positive net lending recently, much due to positive capital transfers, such as the one relative to the
resolution of Banif, an operation which reflected negatively on public net borrowing. Finally, the public
administration’s accounts reveal progressive efforts to reduce net borrowing, while public investment
seems to finally recover, albeit slowly.
The year ended in the last quarter of 2015
(except when stated otherwise, all mentioned
statistics are the four quarters moving average
ending in the referred quarter), the Portuguese
economy registered a net lending of 1.1% of the
GDP, the same level as in the third quarter of the
same year. Comparing with the same period of 2014,
net lending was 0.3 percentage points (p.p.) lower. The
sector responsible for the largest share of this net
lending was the financial sector, with a net lending of
4.2% of the GDP, with families and non-financial
corporations having net lending of, respectively, 0.8%
and 0.6% of the GDP. The public sector was the only one
with a negative contribution, having a net borrowing of
4.4% (budget deficit in 2015). 
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Net lending/borrowing of the economy
percentage of GDP
15%
10%
5%
0%
-5%
-10%
-15%
-20%
December-09
June-11
December-12
Families
PA
NFC
Economy
June-14
December-15
FI
Source: INE
The Portuguese economy has had positive net lending since the last quarter of 2012, meaning that,
as a whole, the economy has had no need of using foreign savings to finance its normal activity. This
relatively recent evolution is a particularly important and positive development, especially when considering the
large imbalances that still remain against the world economy, in terms of stocks. In particular, these imbalances
are shown by a substantial weight of the external debt in percentage of the GDP and in a largely
negative net international investment position, i.e., a net position of indebtedness in relation to the rest of

Net international investment position
Net external debt
percentage of GDP
percentage of GDP
100
160
140
50
120
100
0
80
60
-50
40
20
-100
0
-150
September- 09 March-11 September-12 March-14 September-15
Germany
Italy
Greece
Portugal
Spain
Source: Eurostat
-20
September-09 March-11 September-12 March-14 September-15
Germany
Italy
Greece
Portugal
Spain
Source: Eurostat
“Portugal: net lending remained positive, with looming risks” April 2016

the world. Taking this into account, despite the recent slight decline of the net lending in percentage of the GDP,
the sustainability of a positive value is vital in a forthcoming scenario of internal demand recovery, as it
contributes for a gradual reduction of these significant structural imbalances. 
The reflection (and an important driver of the
increases in net lending of the economy, particularly
of firms) of these positive developments in the net
percentage of GDP
lending/borrowing of the economy is seen on the
1,5%
43,0%
evolution of Portuguese international trade. This
41,0%
trend has resulted in the elimination of an important gap
-0,5%
39,0%
between imports and exports. Since its minimum of 34%
37,0%
-2,5%
of the GDP in the last quarter of 2009, imports as a
35,0%
percentage of the GDP have had a tendency of
33,0%
-4,5%
stabilization around 38-40%. In the last quarter of last
31,0%
29,0%
year, imports represented 39.5% of economic
-6,5%
27,0%
activity, 0.3 p.p. below the previous quarter, and 0.2 p.p.
-8,5%
25,0%
lower than in the same period of 2014. Exports, on the
December-09 June-11 December-12 June-14 December-15
other hand, were at a minimum of 27.1% also in the
ending quarter of 2009. Since then, Portuguese
Trade balance
Imports (RHS)
exports experienced even more significant growth
Source: INE
Exports (RHS)
in these last years, reaching 40.3% of the GDP in
the end of 2015, just 0.2 p.p. below of the highest level recorded, registered in the previous quarter. In result
of this, the trade balance of goods and services has remained positive since the first quarter of 2013. This surplus
represented 0.8% of the GDP in the end of last year, 0.2 p.p. above the previous quarter, and 0.4 p.p. higher
than in the same period of 2014. Maintaining this surplus as internal demand recovers will be fundamental in
order to keep the path of reduction of the previously mentioned macroeconomic imbalances. The first data from
the trade in goods of the first two months of 2016 are slightly disappointing, showing a 1.9% yoy
increase in imports of goods and a 0.8% yoy decrease in exports of goods. Although these numbers should be
influenced by the temporary closing of an oil refinery in the beginning of the year, the evolution of trade in goods
excluding fuels remains dim, as exports were up 0.9% yoy, while imports surged 6.5% yoy in the same period.
International trade in goods and services


Considering the economy as a whole, the level of savings and the level of investment have eliminated
the gap between them, a sign of the achieved external balance of the economy. The level of savings for
the whole economy has stabilized around 15% of the GDP, coming from close to 10% in 2010, having stood at
15.1% of the GDP in the last quarter of 2015; on the other hand, gross capital formation, recently also around
15% of economic activity, has been steadily dropping, already since the beginning of the century, a time at which
the Portuguese economy allocated about 28% of the GDP to investment. In the last quarter of 2015, the
percentage was 15.2% of GDP, 0.1 p.p. below the previous quarter. 


Non-financial corporations had a net lending of
Non-financial corporations
0.6% of the GDP in the end of 2015, 0.1 p.p. higher
than in the previous quarter. In comparison with the percentage of gross value added; percentage of GDP
same period of 2014, there was a drop of 0.1 p.p.. These
35,0%
levels continue the trend verified since the first quarter of 67,0%
30,0%
2013 (when the Portuguese firms first posted a positive 62,0%
25,0%
net lending), with the companies’ net lending standing 57,0%
between 0.4% and 1.4% from that quarter until now. This 52,0%
20,0%
shift three years ago occurred mainly due to a
15,0%
47,0%
progressive
decrease
of
the
Portuguese
10,0%
corporations’ investment rate (in percentage of the 42,0%
5,0%
37,0%
GDP) which took place between 2008 and 2012. The rate,
around 30% in 2008, stands now at 20.2% (20.5% in the 32,0%
0,0%
December-09 June-11 December-12 June-14 December-15
previous quarter), relatively near the minimum of 18.9%
Gross operating surplus / G VA
observed in the third quarter of 2012, a statistic which
Wages / GVA
hints at a significantly low level of investment by the part
Source: INE
Investm ent rate (RHS)
of firms. Moreover, the share of wages paid in
percentage of gross value added by corporations has equally been continuously decreasing: the weight
of wages paid by companies has dropped gradually from levels neighbouring 63% in 2009 to a minimum of 57%
in the end of last year, 0.2 p.p. below the rate in the third quarter of 2015 and 0.9 p.p. less than in the same
period of the previous year. Consequently, the gross operating surplus of firms has been increasing, coming to a
maximum of 42.5% (42.0% in the previous quarter) of the gross operating value in the last quarter of 2015.
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“Portugal: net lending remained positive, with looming risks” April 2016
On the side of households (and non-profit
institutions serving households), the sector posted
a net lending of 0.8% of the GDP, a drop of 0.8 p.p.
yoy change; percentage of disposable income
in comparison with the previous quarter, and of 1.9
8,0%
p.p. comparing with the same period of the
6,0%
previous year. This decrease has been taking place
4,0%
since the high of 4.3% in the net lending of families in the
third quarter of 2013. After that period, there has been,
2,0%
on one side, an increase of the families’ disposable
0,0%
income. Notwithstanding, this rise has been more than
-2,0%
compensated by the increment in consumption: between
-4,0%
the last quarter of 2013 and the end of 2015, disposable
-6,0%
income rose 2.0%, while consumption surged 6.3% in the
December-09 June-11 December-12 June-14 December-15
same period. At the same time, and reflecting this trend,
Disposable income, yoy change
there has been an acute diminishing of the families’
Consumption, yoy change
Savings rate, % of disposable income (RHS)
savings rate, from 7.8% in the last quarter of 2013 to
Source: INE
4.2% in the end of last year, being now well below the
average level of savings in the Euro Zone, which was 12.7% in the last quarter of 2015. The recent tendency has
been also of a decrease in savings, with the value for the last quarter of 2015 being 1.2 p.p. lower than in the
same period of 2014.
Families and NPISH
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The financial sector had a net lending of 4.2%, 2.0 p.p larger than in the third quarter of 2015,
largely due the balance of capital transfers, which has been positive for the last quarters (with the
exception of the third quarter of last year). In the end of 2015, this balance included the impact of the
Banif’s resolution operation, which amounted to 1.4% of the GDP. Besides this, in the last quarter of 2015, there
was also a year-on-year decrease of 0.6% in the sector’s savings, and a yearly drop of 15.9% in gross capital
formation.

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Public administration was the sole negative contributor for the net lending/borrowing of the
economy, posting a net borrowing of 4.4%, 1.3 p.p. larger than in the previous quarter, an increase
that was also driven by the impact of the aforementioned Banif operation, which caused a significantly
negative capital transfers balance. The tendency in these last years confirms the gradual reduction of the
state’s net borrowing, with the public operational savings reaching the least negative value since 2008, standing
at EUR -1.9 billion. Gross capital formation has increased in percentage of the GDP, representing 15.5% of the
gross added value in the last quarter, 0.7 p.p. higher than in the previous quarter, confirming a slight trend of
increase, when comparing with the minimum of 13.1% registered in the third quarter of 2014.
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“Portugal: net lending remained positive, with looming risks” April 2016
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