Portugal, Government of — Moody’s

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Research Announcement:

Moody’s – EU recovery funds will support

Portugal’s recovery and income convergence post-pandemic

THIS PRESS RELEASE ANNOUNCES A REPORT THAT PROVIDES AN UPDATE ON THE

SOVEREIGN CREDIT PROFILE AND MAY ALSO DISCUSS THE LIKELY CREDIT IMPLICATIONS

OF A NEW DEVELOPMENT OR TREND FOR THE SOVEREIGN. IT DOES NOT ANNOUNCE A

CREDIT RATING ACTION.

Paris, February 10, 2021 —

» Structural reforms post financial crisis should support Portugal’s recovery
» But weak growth potential continues to constrain income convergence

European Union recovery funds offer a significant opportunity to support Portugal’s recovery from

the coronavirus pandemic and restart the country’s attempts to accelerate income convergence,

Moody’s Investors Service says in a new report. In addition, the implementation of structural reforms

after the financial crisis will also support Portugal’s recovery.
EU grants, loans and SURE funding have the potential to double public investment in Portugal over

the next two years, while the money also incentivizes reforms in labour and product markets that

could significantly boost potential growth and accelerate income convergence.
“Reforms have significantly reduced Portugal’s current-account deficit and improved its resilience

to external shocks, while EU support offers a significant opportunity to accelerate both growth and

income convergence” said Sarah Carlson, a Moody’s Senior Vice President and the report’s author.
Although Moody’s expects the pandemic and its fallout to push unemployment up to 7% in 2021,

greater labour market flexibility following reforms around the 2011-14 period will facilitate the

reallocation of labour between companies during the recovery. At the same time, product-market

reforms that have improved the business environment should support a recovery in exports as global

conditions improve. In addition, goods exports are now more diversified.
Despite productivity-enhancing reforms, weak growth potential is constraining income convergence

in Portugal, with income levels hovering around 80% of the EU median over the past 20 years.
The EU median is itself a moving target, as it has almost doubled in real terms over the past 20

years, but other EU members have performed better than Portugal and narrowed their income gap

relative to the EU median, particularly those in Central and Eastern Europe.
Moody’s estimates that Portugal’s real GDP would need to grow by 5% on average over the next 10

years for income levels to reach the EU median by 2030. Some labour and product market rigidities

remain unaddressed whilst subdued investment and innovation weigh on efforts to reduce the

productivity gap with peers.
Subscribers can access the report at:

http://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1255860

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Sarah Carlson, CFA

Senior Vice President

Sovereign Risk Group

Moody’s France SAS

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454
Dietmar Hornung

Associate Managing Director

Sovereign Risk Group

Moody’s Deutschland GmbH

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454
Releasing Office:

Moody’s France SAS

96 Boulevard Haussmann

Paris, 75008

France

JOURNALISTS: 44 20 7772 5456

Client Service: 44 20 7772 5454

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