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Economic growth is projected to strengthen to around 2% in 2017 before easing slightly in 2018. Exports will continue to support growth, benefitting from the structural reforms of recent years. Nevertheless, domestic demand is not projected to rebound strongly given persistently high private sector indebtedness. Underlying inflation will pick up in 2018, owing to supply constraints, including a declining working-age population.
Accommodative euro area monetary policy will support growth, but the fiscal stance is projected to be broadly neutral. Investment activity could be further spurred by measures to restore the health of the banking sector, notably regulatory incentives for banks to implement a credible plan for restructuring non-performing loans. Stronger growth would yield a much needed benefit in terms of better fiscal sustainability.
Portugal has benefitted significantly from globalisation, not least during the post-crisis period. Exports are now at 40% of GDP, up from 27% in 2005. Nevertheless, the gains could be greater if the skills of the workforce were raised: the share of the working-age population with upper-secondary education remains one of the lowest in the OECD. This would also benefit inclusiveness, given that the wage premium for high-skilled workers remains high. Reform priorities include a greater emphasis on vocational education, improving teacher training and increasing the resources for pre-primary and primary education.
Economic Survey of Portugal (survey page)