So Jose Barosso and Pedro Passos Coelho what is Portugal and her economy “on track” for now?

This morning has seen the publication of the economic growth or Gross Domestic Product (GDP) figures for many of the Euro area nations. The day was set off in a bad atmosphere as Japan due to her time zone position had got in first and had declared an annualised 0.4% contraction in GDP in the last quarter of 2012. Why the media are presenting Japan’s continued recession as a surprise is odd as the evidence had suggested this was a considerable risk of that. Putting that to one side even the past was worse than we thought as the second quarter of 2012 was revised down from an annualised 0.1% to 1%.

The bad news beat carried on into the Euro area as we saw the French economy shrink by 0.3% in the last quarter of 2012 and even the core/core nation Germany shrink by 0.6%. You may not be the only person wondering how France shrank by less than Germany but over the year as a whole Germany did managed some growth as opposed to France’s flat-lining. Also France has developed a habit which a few nations seem to share of revising numbers down later (when much fewer are looking). This breaks yet another rule of economics as recessions are supposed to be revised up and yet in the credit crunch we find that they are usually revised to be worse and not better. Still both of these did much better than Italy where her economy plunged by 0.9% in the last quarter of 2012 leaving it 2.7% lower than in the last quarter of 2011.

A problem for Portugal

Well might the Portuguese rue such numbers as if their main trading partners are weakening economically it is going to be even harder for her to export her way out of her current malaise. Indeed the very poor numbers for Italy may be seen as a portent as they shared a low economic growth pattern in the decade before the credit crunch hit us. So there is a clear amber if not red warning for what has been a relatively bright spot in the Portuguese economy.

Is this being shown by her trade figures?

Yes it looks as though this is the case. From Statistics Portugal

In the fourth quarter of 2012, exports increased by 1% and imports of goods decreased by 3%, vis-à-vis the same period of 2011.

In 2012 exports increased by 5.8% and imports decreased by 5.4% when compared with 2011

So we see a clear slowing of export growth in the last quarter of 2012 which turned into a 3.2% decline in December. If we look why we see something troubling for the Euro area.

due to the fall in Intra-EU trade

Also we see that the decline has as its largest component “Vehicles and other transport equipment” which is consistent with the problems that area has in Europe for example the  recent write downs at Peugeot Citroen.

Also whilst there looks like there is some hope from the slower fall in imports in the last quarter of 2012 this accelerated to -7.8% on a year before in December.

What about services?

There is no good way of presenting these figures as they simply are of economic depression type levels.

The services turnover index, adjusted for calendar and seasonal effects, decreased 12.5% in December in year-on-year terms (change rate of -8.1% in November)……..For the year 2012 the services turnover index decreased 9.8% (change rate of -7.2% in 2011).

So there you have it an already depression type number got worse in December. This will filter through into other numbers as services are the largest economic sector and we get a guide to this from the numbers below.

The year-on-year change rates of the indices of employment, wages and salaries and of the number of hours worked, adjusted for calendar effects, were -6.3%, -7.0% and -7.4%, respectively

Regular readers will be aware that I use employment trends as a leading indicator and these numbers therefore suggest a weak start to 2013 as well. Also we get perspective on the true situation by realising that the services index shrank by 7.2% in 2011 too.


The index of production in construction decreased by 17.7% in the quarter ending in December 2012, in year-on-year terms (3 months moving average, working days and seasonally adjusted), up by 1.7 percentage points from the rate observed in November (-19,4%).

These are of what one might call extreme depression levels albeit that there was a small improvement on November. As construction is one of the industries which is supposed to lead out of a slowdown we see that there is a long way to go here. Also the employment signal is shockingly poor.

Employment, and wages and salaries registered year-on-year change rates of -18.3% and -21.1%, respectively.

Again this is on the back of a 10.7% decline in construction in 2011.


We see a situation here which is going from bad to worse.

The unemployment rate estimated for the 4th quarter of 2012 was 16.9%. This value is up 2.9 percentage points from the same quarter of 2011 and 1.1 percentage points from the previous quarter.

So 932,300 people are now unemployed in Portugal and as some 52,300 were added to the list in the last quarter we see that the million person barrier looks likely to be broken soon.

What about employment?

Here we see that there are now 4,531,800 employed people in Portugal and that the following has happened.

which corresponds to a year-on-year decrease of 4.3% and to a quarterly decrease of 2.7% (less 203.6 thousand and 124.5 thousand people, respectively).

So we see a sharp acceleration in the rate of fall of employment. If we feed in the numbers we have seen above we see that this is likely to continue into the early part of 2013 and thus depress Portugal’s economy in the first half of the year at least.

The last quarter of 2012 was simply awful

Here are the numbers from Statistics Portugal.

The Portuguese Gross Domestic Product (GDP) registered a year-on-year change rate of -3.8% in volume in the 4th quarter 2012 (-3.5% in the previous quarter),

Ouch! How did we get there?

Comparing with the previous quarter, the Portuguese GDP diminished 1.8%

In essence as discussed above this represents a fading of the export boom which was discussed above as up until now this has hidden to some extent how poorly Portugal was doing in terms of domestic demand. If we look for a little more perspective we now see this.

In 2012, the Portuguese GDP diminished 3.2% in real terms (change rate of -1.6% in 2011).

Also the bulletin gives us nine months of quarterly GDP figures back to the last quarter of 2010 and all of them are negative. Looking further back the latest two quarters look rather like the drop in early 2009. Remember the problem that was “solved” and the crisis that is “over”?! Tell that to the growing ranks of the unemployed in Portugal.

Indeed it may not be the best time for Statistics Portugal to be plugging this.

2013 International Year of Statistics

Recognizing the Contributions of Statistics to Societies Worldwide

Of course they are just the messenger – a historically dangerous position- who are probably listening to Elton John right now.

Don’t Shoot Me! I am only the piano player……


I have been a strong critic of what has been inflicted on Portugal and wrote to her previous government to suggest an alternative route to taking a bailout from her Euro area partners. As I survey the economic destruction that the horrible phrase “on track” has inflicted on Portugal I so wish that they had listened to me. Back in January of 2012 I declared that I feared that an economic depression was more of a risk for Portugal than a recession and now I see that coming true in the sentence below.

I have looked at the quarterly GDP numbers (2006 series) for Portugal and if my calculations are correct this is the worst number in a series back to 2001.

If this is not bad enough there is a shark in the water too as I discussed in my last post for 2012 on New Year’s Eve, “The real fiscal cliff hits Portugal in 2013″

As of tomorrow income tax rates will rise in Portugal. There are various increases set to start but overall the income tax take is set to rise on an average from 9.8% to 13.2%.

Yes yet more austerity was imposed as Portugal moved into 2013. We do have a template for what this does to an economy that is in an economic depression and that is Greece. Such a template should be giving Portugal and her leaders nightmares about what will happen next. So I will leave you with the question at the top of this update.

So Jose Barosso and Pedro Passos Coelho what is Portugal and her economy “on track” for now?

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