Portugal’s focus must realistically continue to be Europe
The European Union will and must continue to be Portugal’s main trading partner for the foreseeable future said Portuguese economist and university professor, António Rebelo de Sousa.
Speaking at a luncheon organised by the International Club of Portugal (ICPT) yesterday (Tuesday), Professor Rebelo de Sousa pointed out that it was a fantasy to imagine that Portugal somehow would have the economic clout to make serious trading inroads in a market such as the United States of America alone.
And the economist, who is the brother of Portuguese President, Marcelo Rebelo de Sousa, said that while the UK was somewhat important for Portugal, it was not particularly important for the United Kingdom which has “enough problems of its own” to really make Portugal any kind of trading priority.
“Brexit was a big disappointment for me, but of course the will of the British people must be respected. The consequences will not be as bad as had been initially thought, but according to various studies the greatest negative event for the UK, EU and Portugal was in fact the pandemic.
However, the immediate consequence of Brexit on the UK’s economy was a hit of around 3% of GDP over three years, but for the EU economy it was less at around 1.5%. The consequences for Portugal, however, which has a small but significant exports trading relationship with Britain (US€3.5Bn in 2020) has been a hit of 1.5-2.0%.
However, Brexit was not catastrophic for Europe, but if other countries such as Spain or Italy follow the UK’s example it would actually call in to question the future of monetary union and the single currency.
“I do not share the pessimists view about the future of the Euro and monetary and economic union” he said making a reference to António de Sousa Franco (Finance Minister in 1979, first president of the Parliamentary Commission for European Integration and Finance minister 1995-1999) who had done sterling work laying down the framework for Portugal’s eventual adhesion to the single currency.
The problem, he says, is that there is no viable alternative to the Euro for some countries who would like to be independent such as Catalonia. Scotland was not mentioned.
As for the United States (US$3.05Bn) and the United Kingdom together, they only represent 9% of Portugal’s exports whereas the EU represents 70-75% of Portugal’s exports.
And the Portuguese-speaking countries (PALOPS) only represent 5% of Portugal’s exports in total. “Our exports to Brazil are a joke”, around 1.6% (US$832M in 2020) while exports to Angola which had represented around 2-3%, today “hardly exist” on the exports register (US$996M in 2020.
The current notion from some quarters that Portugal will create an alternative economic space with the US and UK was dismissed as “fiction”.
“So what really are we building with this alternative economic space. The idea is a fantasy. Does anyone really believe that something can be built with the United States as an alternative to the EU? There are already some protectionist trends, so thinking that somehow the US economy is going to open up, or the British market will be an open alternative market with Portugal as a priority, is fiction.
“We don’t have any power to negotiate whatsoever alone. It’s one thing for Portugal be received by the US trade secretary (Kathrine Tye) within the framework of EU-US economic relations, but it is quite another thing to be received on our own. Sometimes I think people live on another planet!”, he said.
“We have no alternative to the Euro; there are people that might not like it, or even hate it because they think we’ve lost our monetary and national sovereignty. The principle of unlimited national sovereignty within an economic union doesn’t make sense”.
António Rebelo de Sousa admits that some things in the EU don’t work well, that there can be an excess of bureaucracy, that there are economic divergencies between the economies of member states, but it is also true “we’ve moved a lot closer to convergence in recent years than would have been predicted some time ago”.
The Portuguese analyst and economist also outlined some possible scenarios that the world economy could face in the future.
While completely discounting or ignoring the elephant in the room (climate change and its effects on economies worldwide), he instead decided to focus on emerging economies by pointing to studies by Price Waterhouse and Coopers (to 2050) and Ernst & Young (to 2030) which suggest that 44% of the world’s manpower will come from China and India while the world will be dependant on Chinese and US investment.
Rebelo de Sousa also said that a second scenario was that the US would strengthen its hegemony worldwide because of its dynamic economy and horizontal and vertical social mobility.
However, instability in Latin American, the Middle East and challenges from the “Russian Front” coupled with uncertainties in Asia and Africa as well as supporting Europe’s economy all factored into the mix of uncertainties creating a possible time bomb waiting to go off.
The third scenario was what he called ‘wishful thinking’ whereby somehow the EU would increase its economic clout in the world. But according to Ernst & Young in 2030 the EU’s GDP will only be 53-54% of US GDP, although it will be 8-10% above China and five times the GDP of India. Taken together, the US and EU will have a combined GDP clout 2.5% greater than China and India put together.
A fourth scenario, but less likely under President Biden’s administration, is a return to protectionism and tariffs, while a fifth and last scenario (again not taking into account mankind’s relentless appetite for consuming more of the earth’s resources than putting them back) is a new system of archipelagic power with western hegemony and relative dominance of the EU-US Atlantic Axis.
As for the United States, it needed to create a mechanism to support developing countries and set up a new development policy for Asia, Africa with a network in favour of free trade and a democratic governance.
It might be that Price Waterhouse’s forecast for the world economy to 2050 published in 2014 might also be likely.
It predicted then that the world economy would grow at an average of 3% a year to 2050, doubling in size by 2037 with a slowdown in global growth after 2020 (that will no doubt already have been revised in light of the huge amount of borrowing earmarked for economic recovery) as the rate of expansion in China and some other major emerging economies moderates to a more sustainable long-term rate, and as working age population growth slows in many large economies.
The global economic power shift away from the established advanced economies in North America, Western Europe and Japan could continue over the next 35 years. By 2015 China had already overtaken the US to become the largest economy in purchasing power parity terms.
China could overtake the US in 2028 despite its projected growth slowdown. India has the potential to become the second largest economy in the world by 2050 in PPP terms, although this requires a sustained programme of structural reforms.
It projected new emerging economies like Mexico and Indonesia to be larger than the UK and France by 2030 (in PPP terms) while Turkey could become larger than Italy. Nigeria and Vietnam could be the fast growing large economies over the period to 2050.
Colombia, Poland and Malaysia all possess great potential for sustainable long-term growth in the coming decades according to its country experts. At the same time, recent experience has re-emphasised that relatively rapid growth is not guaranteed for emerging economies, as indicated by problems in Russia and Brazil, for example.
It would require sustained and effective investment in infrastructure and improving political, economic, legal and social institutions. It also would require remaining open to the free flow of technology, ideas and talented people that are key drivers of economic catch-up growth.
The consultants also believed that over-dependence on natural resources could also impede long term growth in some countries (e.g., Russia, Nigeria and Saudi Arabia) unless they can diversify their economies.
Of course, another question is what will be the cost of US and China’s decoupling? Bloomberg economics suggests that a bilateral breakdown would be more costly for China than for the US, ending the flow of trade and technology that boosts growth potential would only be a nightmare if the US persuaded its allies to do the same thing.
And what about the US creating its own ‘Belt and Road Initiative (BRI)? If China is funding massive projects all over the world and gaining influence, couldn’t the US do the same?
China’s BRI is an example of China’s willingness and ability to fill voids left by the United Sates. Perhaps the US can do more with her allies partners and multilateral organisations to better meet developing countries’ infrastructure needs and make responding to China’s BRI a core component of a broader US strategy.