The European crisis could be coming to an end. Following Ireland's exit, Portugal is regaining financial independence after Prime Minister Pedro Passos Coelho announced that his government will rely solely on markets for financing after taking the final installment of a €78 billion (US$108 billion) bailout package next month.
The announcement is good news for Asia as Portugal has developed close trade-and-investment relationships with the region's countries, such as Hong Kong and Thailand.
Portugal sought for a bailout in April 2011. While Portugal is exiting from the three-year rescue program and slowly emerging from a recession, the country remains burdened by high unemployment, debt and inefficiencies that could take years to overcome. Portugal is more heavily indebted than before the bailout. The country's debt soared to 129% of GDP, from 93% at the start of the bailout.
"I know the return of economic growth in the last year is yet to be translated into better day-to-day lives for a lot of people," Mr. Passos Coelho said in a televised address. But he added that Portugal is "on the right path and…recovering with a more solid and sustainable base than what we had in the past."
Euro-zone countries taking bailout money have been required to make budget cuts and structural overhauls overseen by the so-called troika—the IMF, the European Commission and the European Central Bank. Greece and Cyprus are still receiving rescue loans.
Under the troika's guidance, Portugal has slashed its budget deficit in half—to 4.9% of gross domestic product—privatized public companies and cut public holidays to 10 a year from 14. Labor restrictions were loosened, allowing companies to set more flexible contract terms, reduce overtime pay and lay off workers more cheaply.
The payoff was an export boom. Exports, which are the main indicator of competitiveness, are now 15% to 16% above where they were before the crisis.
The country's borrowing costs, which had peaked at 17% a year in January 2012, began falling sharply later that year—long before the economy turned around.
Portuguese businesses, already weakened by poor profitability, low self-financing capacity and sizeable debt, have been hardly hit by the recession. Their margins are, however, improving due to lower wages and higher unemployment but insolvencies are continuing to rise dangerously, chiefly affecting domestic market-oriented SMEs (trade and craft industry, construction). Payment incidents recorded by Coface, for their part, reached a peak in 2012. The banking sector has withstood the crisis relatively well and has strengthened its solvency position in recent years, although bank profitability has been affected by the worsening economic situation and the need to deleverage.
The economy is growing again, but the government's forecast of 1.2% GDP expansion this year is less than one-third of what the economy has lost since the bailout began. Unemployment is at 15.3%, down from a peak of 17.7%.