Assessment and challenges of industrial policies in Portugal

Like most developed countries, the Portuguese economy was severely hit by the international crisis of 2008-2009, with GDP at constant prices dropping 2,9% in 2009 and unemployment increasing by 2,1 percentage points (p.p.) in the same year, affecting 10,6% of the workforce. As a combined result of the decrease in tax revenues, the rise in social transfers and, to a lesser extent, the countercyclical measures adopted by the government, gross public debt increased by 12 p.p., reaching 84% of the GDP in 2009. As we have discussed in this chapter, Portugal urgently needs to enhance the competitive performance of its economy it the world markets, in order to reduce its external imbalances and improve the prospects for a sustainable improvement of living conditions. Such goal can hardly be achieved without upgrading the specialization profile of the economy, towards more sophisticated, tradable products. While some of the ‘structural reforms’ implemented under the adjustment program agreed in 2011 with the troika of international creditors (the IMF, the ECB, and European Commission) may have a role in improving the cost-competitiveness of the 17 country, this is probably insufficient – or even counter-productive – for inducing the necessary changes. Clearly put, Portugal should not dismiss the role of policies which specifically aim at enhancing productivity through structural change.