Export-led growth in Portugal after the COVID-19 pandemic

The COVID-19 pandemic has led to a significant decline in demand in Portugal and elsewhere in the world. In Portugal, private consumption is projected to fall by 8% in 2020 and investment spending by 11%. Furthermore, private consumption growth over the long-run is likely to remain low due to ageing demographics of the Portuguese society: its old-age dependency ratio is at 40%, already 10% higher than the OECD average. Where then might an increase in aggregate demand come from? The Portuguese government provided a fiscal stimulus in response to the crisis, but this was fairly modest at 2.5% of GDP. Further contributions to aggregate demand stimulation by the government are constrained by the high level of public debt that is expected to exceed 130% of GDP by the end of 2020, amongst the highest across OECD countries.

This leaves foreign demand as a potential source of aggregate demand. Exports have been a significant driver of economic growth in Portugal over the past decade, contributing 44% to GDP in 2019. The question is, can exports continue to be a driver of growth in Portugal, and in particular, can exports contribute to recovery from the COVID-19 crisis?

This paper argues that international trade has been less disrupted during the COVID-19 pandemic than during the 2009 global financial crisis. By end of 2020, global merchandise trade has made a significant recovery. Therefore, exports can provide the needed demand shock to lead the economic recovery. For Portugal the challenge is to identify viable export opportunities. The analysis shows that there are still significant under-utilized export opportunities for Portugal. The paper uses the large UN-COMTRADE and CEPII BACI data sets to which they apply four sets of filters, based on economic theory, to identify 42,593 realistic export opportunities. These opportunities are worth €286.6 billion in untapped revenue potential. The major markets for these products are countries such as United States, Germany, China, United Kingdom, France and Japan.

Click here to go to the paper by Wim Naudé and Martin Cameron.