which was a fundamental element of supply-side economics?.
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Overall, the favourable economic performance of the Portuguese economy noted in previous Surveys has continued, but there are a number of warning signals. Output growth has remained strong in and unemployment has fallen to a low level, but after seven years of expansion, the output gap has closed and pressures on production capacity have started to be felt. Even within a monetary union, the accumulation of private-sector debt associated with a current wwas deficit of this magnitude will, if no policy actions are taken, necessarily lead to an endogenous reaction by households to cut back their borrowing. There is already evidence that an adjustment process wihch begun, evidenced in the slowdown in which was a fundamental element of supply-side economics?
demand and a stabilisation of the saving ratio. But the process of restoring better balance to supply and demand will require strong support from fiscal policy, which remains the main macroeconomic tool available to ensure that the adjustment takes place at a sustainable pace. Portugal has consistently met its budget deficit targets under the Stability and Growth Pact, but these have not been ambitious given the generally favourable economic conditions and continue to be unambitious over the next four years.
Moreover, in meeting its budget deficit targets, Portugal has increased both tax revenues and current expenditures sharply relative to GDP in the last few years.
In the future, fiscal adjustment is likely to require better control of public spending, which calls for further structural reform in the health and other social spending sectors, as well as stronger action to rein in the public sector payroll. Indeed, a fiscal reform that reduces distortions, improves tax compliance and harmonises tax rates at a lower level, as foreseen in some of the current government proposals, would strengthen Portugal's supply-side performance, while also enhancing equity.
This would be reinforced by further steps to increase product market competition and re-energise the privatisation programme. Combined with the on-going efforts to enhance human capital and the infrastructure, such structural reforms should allow the convergence of per-capita incomes to levels in more advanced https://digitales.com.au/blog/wp-content/custom/african-slaves-during-the-nineteenth-century/odyssey-character-traits.php partners to continue on a sustainable basis.
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The economic expansion continued for a seventh year inas strengthening demand from Portugal's EU trade partners more than offset a downturn in private consumption. The disinflation process, which had taken the rate of price increase down to just over 2 per cent in was interrupted from April, the harmonised CPI rise reaching over 4 per cent in earlysomewhat above the EU average.
The rise in oil prices combined with the weaker economicx? contributed to this outcome. However, despite slowing domestic demand, Portugal's more advanced position in the cycle appears to have increased pressures on resources, as the gap between actual and potential GDP has closed.
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While the business climate continues to be positive and the increase in EU transfers should underpin investment, output growth is projected to ease slightly in and Monetary conditions have tightened, as the ECB has gradually raised rates since November the three-month Euribor rate rose above 5 per cent in the last quarter of and credit-market rates have risen more or less in parallel. Enterprises have maintained their borrowing, the depreciation see more the euro having limited the degree of monetary firming for the export-oriented sector. But households are now highly indebted, and are rapidly affected by variations in short-term interest rates most borrowing being at variable rates.
Household spending is likely to continue to slow as consumers rein in their borrowing and the saving ratio has stabilised. Overall, with no stimulus expected from public consumption, GDP growth of just below 3 per cent is projected for Unemployment should stabilise at its structural rate of around 4 per cent.
In countries with a national currency, this level of deficit would be a considerable source of exchange-rate tension, but within the EMU the economy is insulated from strains emanating from the external sector. The deficit, in fact, relieves domestic supply pressures.
Alberto Mingardi
Nevertheless, even within a monetary union the deficit is a cause for concern. In the first place, to the extent that it reflects a growing gap between supply and demand, it could be an indicator of inflationary pressures to come. Indeed, inflation and its possible effects on Portugal's external competitiveness, are probably the major elements of uncertainty in the projections. Since there has been increasing wage drift, and discipline will be needed in the wage negotiations to ensure a more moderate outturn. It is essential that a wage-price spiral be avoided, the consequences of which would be a further deterioration in cost competitiveness or tighter margins, serving to lower exports and investment.]
Bravo, the excellent answer.