After Greece, Portugal can be the next big prey of the recent recession. What new can Portugal do at this stage? How can it push its GDP?
GDP = C + I + G + X – M, how can Portugal play around with this equation to increase the GDP?
The challenges in front of Portugal are
1. Portugal’s public debt is 77% of GDP (2009) and external debt is a whopping 223% of GDP (2009). In these circumstances there is no easy way of spurring the economy through Government spending or Government investment.
2. Gross national saving has gone below 10% of GDP which shows unavailability of domestic saving for investment.
3. Devaluing their currency to boost export is not an option.
4. With stringent labour laws it’s hard to see productivity rising in near future.
Thus it is clear that it’s hard to find more money for domestic investment either from household or from the Government. The challenges don’t end here. Even if Portuguese start saving more and Government gets a relief package from EU, the next question would be where to invest. Where should the Government be spending money?
