Facts on nontradables in the Portuguese economy

The rise of nontradable sectors has been mentioned as one of the causes of low economic growth and external imbalances at the root of Portugal’s current predicament – João Ferreira do Amaral and Vítor Bento were among the first to ring that alarm bell. The ECB, the EU and the IMF (troika) seem to share the same view. The 2012 OECD Economic Survey of Portugal has also stressed the need for eliminating the distortions that tilted the Portuguese economy towards low-productivity domestically-oriented sectors. Recently, the President, Aníbal Cavaco Silva, and the Minister of the Economy, Álvaro Santos Pereira, have also been calling for the re-industrialization of the Portuguese economy.    

In a joint paper with Pedro Bação, we describe the main trends and jumps in the evolution of nontradable sectors, since the mid-1950s, using four different databases to shed light on different dimensions of this issue. From our analysis we stress the following points:

1. Despite the pattern of the growth of the share of services being similar to that observed in other developed countries, since the early 1990s it has been significantly larger than in most countries.

2. The shift to nontradables in Portugal has been fast and it occurred essentially at the expense of agriculture in the period 1953-95, and essentially at the expense of industry in the period 1995-2009.

3. In 2009, the share of nontradables (defined as the sum of services plus construction) in total GVA reached 68%, if we exclude open service sectors, and 81.1%, if we treat all service sectors as nontradable.

4. More than half of the change towards nontradables since joining the European Union took place in the period 1988-1993.

5. Finally, we show that construction and services facing a strong Government demand were the main drivers of the increasing weight of nontradables in the Portuguese economy since 1986.