Wedding photographer Vitor Duarte knows what it’s like to get a smile, and he says there’s not much to smile about in Portugal.
Deputy Prime Minister Paulo Portas announced last month the recession was over and that “Portugal is back.” The country’s 1.6 percent year-on-year growth in the fourth quarter was higher than anywhere else in the euro region. Its 10-year borrowing costs have tumbled by a percentage point this year and Lisbon’s benchmark stock index has jumped 12 percent.
The government is just trying to “cheer people up,” said Duarte, 44, who’s snapped people’s nuptials for almost two decades. “The truth is we’ve hit the bottom and it will take decades to recover what was lost in just a few years. Some people my age have been completely ruined.”
Politicians, monetary policy makers and investors are closer to drawing a line under the euro crisis. The government and European Union are promoting Portugal as a success story as it prepares to exit its 78 billion-euro ($108 billion) bailout program in May. Yet behind the curtain there remains a debt mountain still bigger than the economy.
To convince investors Portugal’s debt is sustainable, the economy has to expand 1.5 percent to 2 percent a year in real terms, former Finance Minister Fernando Teixeira dos Santos said in an interview on Feb. 21. The country’s economic growth has averaged less than 1 percent a year for the past decade, making Portugal among Europe’s weakest performers.
“This scenario puts us in a risky position because from one moment to the other markets can start to think that growth is insufficient,” said Teixeira dos Santos, 62, an academic who was in the government that requested aid from the EU and the International Monetary Fund in April 2011. “Markets can stop believing we will actually be able to do our job.”
It’s not just the Portuguese state that is struggling with high debt. Last year, an average of 467 companies went bankrupt every month, according to the IIC-Instituto Informador Comercial, a consulting firm in Lisbon. And, while people are managing to find work, unemployment is near a record high. About 250 Portuguese left the country every day last year, estimates by the Observatory of Emigration in Lisbon show.
“With its high debt ratios and large refinancing needs, Portugal remains susceptible to any abrupt changes in market sentiment,” the IMF said on Feb. 19. “At above 15 percent, unemployment remains at unacceptable levels.”
Through his lens, Duarte observes a country grappling with a decline in living standards that sharply contrasts with the picture being portrayed by politicians and reflected in the markets. Fewer Portuguese can afford to throw a party to tie the knot now so business has declined, he said.
Duarte makes about half what he used to earn from shooting a wedding compared with three years ago and zoomed in on foreigners who come to Portugal to get married. Compared with others in Lisbon, he hasn’t had it too bad. Before the crisis, he used to change car every four years to keep it fresh for his business. He’s now planning to stick with his Mazda.
“More than half of my clients today are Portuguese emigrants or foreigners,” said Duarte. “Last year, I even took pictures at a Chinese wedding.”
Much of the work in the euro region remains to be done, said Jeremy Lawson, chief economist at Edinburgh-based Standard Life Investments, which manages about 180 billion pounds ($300 billion) of assets. There’s the debt, banking union and potential growth still remains quite low, he said.
“There are still a lot of challenges that lie ahead,” Lawson said in an interview on Feb. 18. “If you look at public debt to GDP ratios, they are significantly higher than they were before the financial crisis. There’s still a big legacy debt issue that will have to be dealt with over time.”
The debt outlook remains “fragile” for Portugal, the IMF said. Debt is forecast to have peaked below 129.5 percent of GDP last year, while corporate borrowing exceeded 155 percent at the end of 2012, according to the IMF.
On the surface, Portugal may look like what Commerzbank AG analyst Ralph Solveen described in a research note on Jan. 14 as “the true Iberian economic miracle.”
The economy returned to growth last year after 10 consecutive quarters of contraction. Exports rose 6.4 percent in the three months through December from the same period a year earlier, according to the National Statistics Institute.
Yet, Portugal has two economies: a global one fueled by the tourism sector and exporting companies and a domestic one struggling with high unemployment and cuts in government spending. The first is booming because of lower labor costs and a record number of visitors to Portugal last year. The second remains too saddled with debt to benefit from any recovery.
“The positive reaction in the markets regarding Portuguese bonds and stocks is mainly a result of what is happening in the rest of Europe,” said Diogo Serras Lopes, head of investments at Banco Best in Lisbon. “Even though the economy has returned to growth, most other indicators are worse than when the crisis began” three years ago, he said.
Personal bankruptcies almost doubled to 12,930 last year from 7,071 in 2011, the year Portugal sought emergency aid. Company insolvencies rose 27 percent in the same period, according to the IIC, the consulting firm in Lisbon.
Portugal’s unemployment rate is the fifth-highest in the EU, even after declining to 15.3 percent in January from 17.6 percent in the same month of 2013, according to Eurostat. It compares with 28 percent in Greece.
“Portugal has passed the Cape of Storms and is now sailing the winds of a recovery,” said Pintassilgo, 44, who helps manage 50 million euros in Portuguese assets for F&C. “It’s one of the best stories in the periphery.”
The PSI 20 Index notched up the third-biggest gain among 24 developed markets tracked by Bloomberg this year after Denmark and fellow bailout recipient Greece. The gauge advanced 16 percent in 2013, its best performance since 2009, after Portugal emerged from its longest recession in at least 25 years.
For many Portuguese, the benefits of this recovery have so far failed to materialize. Property prices are falling, while wages and pensions continue to decline. Youth unemployment runs at 34.7 percent, a figure curbed by an exodus of people.
Portugal’s emigration rate probably rose last year from about 90,000 people in 2012, said Rui Pena Pires, scientific coordinator at the Observatory of Emigration in Lisbon. That’s higher than in the 1970s when Portugal was sending troops to try to retain its African colonies during the tail end of Antonio de Oliveira Salazar’s rule.
Lisbon taxi driver Marco Goncalves has a way of measuring how Portugal’s economy is doing: he counts the number of young men and women he takes to the airport to travel to Angola, Mozambique or Brazil to find work.
“It’s a tragedy,” said Goncalves. “During the colonial war people left to fight for their country. Today they leave because they’ve given up on their country.”
Portugal’s 2014 budget calls for 3.2 billion euros of spending cuts, including a reduction in salary payments to public workers and pensioners. The government relied mostly on tax increases in prior years to narrow its budget deficit.
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings still rate Portugal below investment grade. While things are “clearly moving” in the right direction, it’s too early to talk about increasing Portugal’s credit rating, Fitch Chief Executive Officer Paul Taylor said on Feb. 18.
“Investors are starting to place their eggs in the periphery basket again and the performance of Portuguese stocks so far highlights this trend,” said Pintassilgo. “Eventually the positive trend in the markets will trickle down to the rest of the population.”
Economy Minister Antonio Pires de Lima has described Portugal’s return to growth as an “economic miracle.” Photographer Duarte shrugs at the notion things are improving.
“What I haven’t heard anyone say is that it will take us three times longer to recover from this fall than the fall itself,” Duarte said.
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