“Long is the way, and hard, that out of trade deficit leads up to trade balance”
I feel a little unease to edit Milton but I am searching for strong words to convey a truth that is hard to accept. It will take time and efforts to convince international investors that the Portuguese economy external position is sustainable. The news that exports are increasing is good. Notice that imports too are increasing and what ultimately matters for the current account balance is the difference between exports and imports. Consider the data published by the Portuguese statistical office: in 2010 exports of goods have increased by 15.7% (to 36.8b) and imports of goods have increased by 10.2% (to 56.8b). The trade balance for goods is negative and therefore contributes to increase the current account deficit. The fact that Portugal imports are still much larger than exports (1.5x) implies that the trade balance for goods has deteriorated by 2.1% and therefore contributes negatively on GDP growth. Now assume (imagine) that from this day on exports continue to increase by 15.7% per year and imports continue to increase by 10.2% per year. If that was true, net exports would start to improve in 2012 (contribution to GDP growth) and become positive in 2019 (finally helping the current account). These dates are wrong as they do not take into account the correct growth forecasts for exports and imports, but they convey part of a truth. It will take time to adjust the trade balance of goods. And the whole truth is that it will also require efforts to adjust the trade balance within our currency area. In a now classic paper, cited a few days ago in this blog by Pedro Martins, Olivier Blanchard described back in 2006 the difficulties and the efforts required for the current account adjustment to occur. And there is no doubt that the adjustment has to predominantly occur inside the euro area (Eurostat).
The day when the current account will become positive will be the day Portugal will start to repay its external debt. Policies aimed at bringing that day closer might be welcomed by external creditors.
Maybe one day the many euro area national debts will be guaranteed by the single currency area and become one. That would help decrease the income outflow. Maybe that day will not happen. Concessions from euro area creditors would certainly help. In any case Portugal debt must be brought on a sustainable path.