from the editor
I've spent the past week hiking through the Portuguese countryside, where there has been little evidence of the country’s economic recovery.
Portugal, like a number of its fellow southern European countries, was hit hard by the global financial crisis, prompting a protracted recession, massive debt hangover and €78bn bailout from the EU and International Monetary Fund in 2011.
At that time, the country was downgraded to junk – six years and many painful reforms later, it is yet to regain an investment grade credit rating from Moody’s, Standard & Poor’s and Fitch. (The little-known Canadian rating agency DBRS has maintained its investment grade rating on Portuguese debt, which has allowed the country to benefit from the European Central Bank’s bond-buying programme.) Growth is expected to remain a very lacklustre 1.25% over the next two years, according to the Organisation for Economic Co-operation and Development (OECD).
While Portugal has seen significant improvements in a number of areas – unemployment, for example, has been cut from over 15% to around 10%, and the budget deficit hit a 40-year low of 2.1% in 2016, less than half of 2015’s 4.4% and back within EU limits – it has been a long, hard slog. GDP remains below pre-crisis levels; government debt is a massive 130% of GDP (2008: 70%); and concerns remain about the health of its banking sector, which has required government bailouts and continues to weigh on investor confidence. Corporate debt levels (excluding the financial sector) are at about 145% of GDP, among the highest levels in Europe.
As part of its recovery plans, a programme called Portugal 2020 was launched in 2014, with €25bn earmarked from the European Commission for projects to improve competitiveness, create jobs and develop skills. During our hike we passed numerous construction and agricultural projects that benefit from this programme, though it is clear that much more investment will be needed to reach higher and sustainable levels of growth.
In general, observing the dilapidated mansions in Portugal’s small towns and villages left me with the feeling that the country’s glory days are behind it. In South Africa, despite our many challenges, there are many signs of progress – and I continue to believe that our best days are yet to come. But, as Portugal’s recovery shows, it is much easier to wreck an economy than to build it – we, too, are in for a long, hard slog.