Description
It analyses the crisis in detail.
INTERNATIONAL MARKETING:
ANALYSIS OF THE CRISIS ON PORTUGAL
Economy of the country…
• High income mixed economy • Economy is service based • Imports from EU countries : Spain, Germany, France and UK • Exports
ther EU members • Essentially agriculturist (60% exports are of basic in nature)
Economy of the country…
• Mainly wheat and corn also include olive oil , vegetable and herbs • Biggest producer of cork oak olive oil production and exportation of canned foods • Construction and steel industry, fishing industry and tourism
The roadmap to the EU…
• • • • EU member in 1986 Suffered from recession in 1993 Thereafter a growth rate of 3.3% To qualify for EMU, Portugal had to: • Cut its fiscal deficits • Undertake Structural Reforms
The roadmap to the EU…
• Qualified for joining the EMU in 1998 • Joining EMU was beneficial since it lead to: • Falling Inflation rate • Falling Interest Rate which further lead to: • Lowered the cost of public debt • Helped Portugal achieve Fiscal Targets • Exchange Rate stability
Portugal in statistics
• • • • Budget deficit of 6% in 2005 reduced to 2.6% in 2007 GDP €163 billion (approx $220 billion) GDP per capita €15,176 GDP composition : – Services : 71.4% – Industry : 26.3% – Agriculture : 2.3% • Unemployment Rate :9.2% • External Debt : $ 507 billion • Growth rate for 2009 (-5.5%)
Agriculture GDP Composition 3%
Industry 24%
Services 73%
Portugal in statistics
• Budgeted revenue : $ 91.89 billion • Expected expenditure: $ 106.8 billion • Public debt : 75.2% of GDP (18th and India ranks 30th with 60.10%) • External Debt $ 507 billion as on 30 June 2009. • Agricultural products: grain, potatoes, tomatoes, olives, grapes; sheep, cattle, goats, swine, poultry, dairy products, fish.
Trends in the Budget Deficit
10% 8% 6% 9.30%
6.10%
3% 3.90% 2.60% 2004 2005 2006 2.20% Budget deficit
4%
2% 0%
2007
2008
2009
Major Export Industries…
• • • • • • • • € 37.9 billion agricultural products and food products oil based products plastics and rubber textile materials Clothing and footwear minerals and mineral products base metals
Items Machinery and Tools Vehicles and other transport materials Base Metals Clothing Oil products Plastics and Rubber Minerals and Mineral Products Chemical Products Food Products Agricultural Products Wood Pulp and Paper Wood and Cork Textile Footwear Optical and Precision Instruments Skin and Leather
Percentage of total exports (%) 19 12.8 9.1 6.3 6.1 5.9 5.6 4.5 4.4 4.4 4.2 4.2 4.1 3.3 0.9 0.3 60% of exports are basic goods.
Export partners…
Export %
Spain 26%
Others 39%
Germany 13% France 11% UK 5% Angola 6%
Major Import Industries…
• • • • • • • • • € 61 billion Agricultural and food products, oil products wood and cork wood pulp and paper, textile materials, computer accessories and parts household goods passenger cars new and used wine products
Items Machinery and Tools Oil Products Vehicles and other Transport Materials Chemical Products Agricultural Products
Percentage of Total Imports 18.3 16.7 13.1 9.7 9.1 60% of imports are high precision and advanced products.
Base Metals
Plastic and Rubber Food Products Textile Materials Clothing Wood Pulp and Paper Optical and Precision Instruments Mineral and Mineral Products Wood and Cork
8.5
4.7 3.4 2.8 2.4 2.2 1.9 1.5 1.2
Skin and Leather
Footwear
0.9
0.9
Imports of Portugal…
Netherlands Italy 8% 8%
Imports
France 14%
Germany 20%
Spain 50%
The crisis…
• The Budget deficit is approx. 9.3% of GDP – Ideally it should be 3% as per EU Standards • Public debt is 80% of GDP – Ideally should be 60% of GDP as per EU Standards • Unemployment rate stands at approx. 10% – Ideally it should be at 5-6% for development • Very low GDP growth at 1%- among the lowest in Europe • Low growth ? Loss of competitiveness • Declared as the “Sickman of Europe” in 2007 by The Economist • S&P downgrades Portugal by A-, increasing the interest spread and debt burden eventually
Crisis (contd…)
• • • • Loss of export market share to emerging economies Hence, Portugal started heavily borrowing abroad Currently house hold debt ? 100% of GDP Debt of non financial companies ? 140% of GDP
Portugal GDP Growth
2.5 2 1.5 1 0.5 0 -0.5 -1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP Growth (%)
-1.5
-2 -2.5 -3
Causes of the crisis…
• Very high public spending • Exorbitant borrowing to take advantage of higher interest rates • Lead to inflation, higher interest rates in the country, high spending • Minority government unable to incorporate necessary measures to tackle the crisis
Effect of Euro-Zone on Portugal
Before joining…
• Portugal was a haven for cheap labor in early 1990’s. • Investments increased and MNC’s started operations in Portugal. • Average growth rate of 3.5% was achieved. • Increased inflation due to supply shortage in later years lead to rise of Social Democrat party. (late 90’s) • Value Added Tax (VAT) -> 17% to 19% Removing housing subsidies to youth Laying off 50,000 government employees • Anti immigration and new labor laws were introduced by to avert crisis
At the time of joining…
• Joined EU in 1999 when interest rates were higher compared to Germany & France. (Opportunity) • Banks sensed an opportunity and started borrowing heavily for lending book by issuing bonds. • Corporations and people started investing heavily by borrowing leading to inflation and increased interest rates, defaults! • Fiscal deficit reached alarming 9% of GDP by 2008 when EU allowed for just 3% • Credit ratings were slashed and shares started tumbling with negative sentiments. • Debt as a ratio of GDP reached 84% next to Greece with 124%.
What went wrong??
• De-valuation of currency is not possible • Lack of political union along with economic union • Treasury for the union which issues warnings takes care of the solvency for the member countries would have helped averting/reducing impact of crisis
Solutions implemented…
Current measures being undertaken: • Investing in areas that add value, like clean and sustainable energy sources • EU’s support to member nations by providing shortterm and long-term loans • ECB’s cut down of main interest rates by 3.25% to boost lending by banks • Strengthening financial supervision
Recommended Solutions:
• Cut down on investments in luxury segments, example: € 1 billion on high-speed internet in rural areas • Increase tax rates for high income groups • Freezing of wages and hiring in PSUs
Thank You!
doc_329490974.pptx
It analyses the crisis in detail.
INTERNATIONAL MARKETING:
ANALYSIS OF THE CRISIS ON PORTUGAL
Economy of the country…
• High income mixed economy • Economy is service based • Imports from EU countries : Spain, Germany, France and UK • Exports
ther EU members • Essentially agriculturist (60% exports are of basic in nature)Economy of the country…
• Mainly wheat and corn also include olive oil , vegetable and herbs • Biggest producer of cork oak olive oil production and exportation of canned foods • Construction and steel industry, fishing industry and tourism
The roadmap to the EU…
• • • • EU member in 1986 Suffered from recession in 1993 Thereafter a growth rate of 3.3% To qualify for EMU, Portugal had to: • Cut its fiscal deficits • Undertake Structural Reforms
The roadmap to the EU…
• Qualified for joining the EMU in 1998 • Joining EMU was beneficial since it lead to: • Falling Inflation rate • Falling Interest Rate which further lead to: • Lowered the cost of public debt • Helped Portugal achieve Fiscal Targets • Exchange Rate stability
Portugal in statistics
• • • • Budget deficit of 6% in 2005 reduced to 2.6% in 2007 GDP €163 billion (approx $220 billion) GDP per capita €15,176 GDP composition : – Services : 71.4% – Industry : 26.3% – Agriculture : 2.3% • Unemployment Rate :9.2% • External Debt : $ 507 billion • Growth rate for 2009 (-5.5%)
Agriculture GDP Composition 3%
Industry 24%
Services 73%
Portugal in statistics
• Budgeted revenue : $ 91.89 billion • Expected expenditure: $ 106.8 billion • Public debt : 75.2% of GDP (18th and India ranks 30th with 60.10%) • External Debt $ 507 billion as on 30 June 2009. • Agricultural products: grain, potatoes, tomatoes, olives, grapes; sheep, cattle, goats, swine, poultry, dairy products, fish.
Trends in the Budget Deficit
10% 8% 6% 9.30%
6.10%
3% 3.90% 2.60% 2004 2005 2006 2.20% Budget deficit
4%
2% 0%
2007
2008
2009
Major Export Industries…
• • • • • • • • € 37.9 billion agricultural products and food products oil based products plastics and rubber textile materials Clothing and footwear minerals and mineral products base metals
Items Machinery and Tools Vehicles and other transport materials Base Metals Clothing Oil products Plastics and Rubber Minerals and Mineral Products Chemical Products Food Products Agricultural Products Wood Pulp and Paper Wood and Cork Textile Footwear Optical and Precision Instruments Skin and Leather
Percentage of total exports (%) 19 12.8 9.1 6.3 6.1 5.9 5.6 4.5 4.4 4.4 4.2 4.2 4.1 3.3 0.9 0.3 60% of exports are basic goods.
Export partners…
Export %
Spain 26%
Others 39%
Germany 13% France 11% UK 5% Angola 6%
Major Import Industries…
• • • • • • • • • € 61 billion Agricultural and food products, oil products wood and cork wood pulp and paper, textile materials, computer accessories and parts household goods passenger cars new and used wine products
Items Machinery and Tools Oil Products Vehicles and other Transport Materials Chemical Products Agricultural Products
Percentage of Total Imports 18.3 16.7 13.1 9.7 9.1 60% of imports are high precision and advanced products.
Base Metals
Plastic and Rubber Food Products Textile Materials Clothing Wood Pulp and Paper Optical and Precision Instruments Mineral and Mineral Products Wood and Cork
8.5
4.7 3.4 2.8 2.4 2.2 1.9 1.5 1.2
Skin and Leather
Footwear
0.9
0.9
Imports of Portugal…
Netherlands Italy 8% 8%
Imports
France 14%
Germany 20%
Spain 50%
The crisis…
• The Budget deficit is approx. 9.3% of GDP – Ideally it should be 3% as per EU Standards • Public debt is 80% of GDP – Ideally should be 60% of GDP as per EU Standards • Unemployment rate stands at approx. 10% – Ideally it should be at 5-6% for development • Very low GDP growth at 1%- among the lowest in Europe • Low growth ? Loss of competitiveness • Declared as the “Sickman of Europe” in 2007 by The Economist • S&P downgrades Portugal by A-, increasing the interest spread and debt burden eventually
Crisis (contd…)
• • • • Loss of export market share to emerging economies Hence, Portugal started heavily borrowing abroad Currently house hold debt ? 100% of GDP Debt of non financial companies ? 140% of GDP
Portugal GDP Growth
2.5 2 1.5 1 0.5 0 -0.5 -1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP Growth (%)
-1.5
-2 -2.5 -3
Causes of the crisis…
• Very high public spending • Exorbitant borrowing to take advantage of higher interest rates • Lead to inflation, higher interest rates in the country, high spending • Minority government unable to incorporate necessary measures to tackle the crisis
Effect of Euro-Zone on Portugal
Before joining…
• Portugal was a haven for cheap labor in early 1990’s. • Investments increased and MNC’s started operations in Portugal. • Average growth rate of 3.5% was achieved. • Increased inflation due to supply shortage in later years lead to rise of Social Democrat party. (late 90’s) • Value Added Tax (VAT) -> 17% to 19% Removing housing subsidies to youth Laying off 50,000 government employees • Anti immigration and new labor laws were introduced by to avert crisis
At the time of joining…
• Joined EU in 1999 when interest rates were higher compared to Germany & France. (Opportunity) • Banks sensed an opportunity and started borrowing heavily for lending book by issuing bonds. • Corporations and people started investing heavily by borrowing leading to inflation and increased interest rates, defaults! • Fiscal deficit reached alarming 9% of GDP by 2008 when EU allowed for just 3% • Credit ratings were slashed and shares started tumbling with negative sentiments. • Debt as a ratio of GDP reached 84% next to Greece with 124%.
What went wrong??
• De-valuation of currency is not possible • Lack of political union along with economic union • Treasury for the union which issues warnings takes care of the solvency for the member countries would have helped averting/reducing impact of crisis
Solutions implemented…
Current measures being undertaken: • Investing in areas that add value, like clean and sustainable energy sources • EU’s support to member nations by providing shortterm and long-term loans • ECB’s cut down of main interest rates by 3.25% to boost lending by banks • Strengthening financial supervision
Recommended Solutions:
• Cut down on investments in luxury segments, example: € 1 billion on high-speed internet in rural areas • Increase tax rates for high income groups • Freezing of wages and hiring in PSUs
Thank You!
doc_329490974.pptx