Consumer spending unsustainable in long term, Bank of Portugal says

19 April 2006

Lisbon, Portugal, 19 April – Consumer spending in Portugal fed by bank loans is unsustainable in the long term and the economy’s recovery is not based on a sustained recovery of activity, the Bank of Portugal said in its Spring Economic Bulletin.

In the bulletin, published Tuesday, the central bank said it had seen no positive signs in the Portuguese economy in 2005.

Reduced growth levels are added to stagnation of employment and increased unemployment, according to the bulletin which added that, due to the worsened public deficit, economic agents fear tax increases.

In 2005 production was affected by price increases of raw materials and energy as well as the sustained growth of labor costs that were not even put under pressure by increased unemployment.

As a result productivity fell and the economy’s competitiveness continued to affect exports, which remained flat as the rose just 0.9 percent in 2005 against the previous year.

Company indebtedness increased, as has happened since the beginning of the decade. It now represents 97 percent of Gross Domestic Product.

But, said the central bank, loans taken out in 2005 were largely used to finance current activities and to restructure debt.

Consumer and public spending maintained “growth levels that were clearly above that of GDP.” But for consumers, the central bank’s warning has been issued: Portuguese families will have to adjust their spending if the economy shows no signs of recovery.

Family indebtedness increased again and now stands at 120 percent of available income, which means that annual salary, net of taxes and state contributions, is insufficient to pay off bank loans. (macauhub)