State of the Environment Report

Macroeconomic Scenarios for Portugal in 2050


1. Introduction

The scenarios presented in this document were prepared by the Foresight and Planning Unit of the General Secretariat of the Ministry of the Environment and Energy Transition, based on the information available up to March 22, 2019, and are an update of the macroeconomic scenarios presented in the 2017 State of Environment Report (APA, 2017), hereinafter referred to as REA 2017.

It should be noted that the presented values do not have the character of forecasts, representing only possible patterns of evolution of the national economy, which are related, among other aspects, to the international framework, for which two scenarios (High and Low), concerning the World and the European Union, summarized in Table 1, are presented.

Table 1 – International Scenarios for GDP

(Average annual variation rates in volume)

  Observed (a) Low Scenario High Scenario
  2001-17 2018-22 2023-30 2031-50 2018-22 2023-30 2031-50
EU 28 1,4% 1,5% 1,2% 1,3% 1,2% 1,8% 2,0%
World (B) 3,8% 3,3% 2,6% 2,1% 3,5% 3,2% 3,0%

(A) Sources for observed variation rates 2001-2017: EU28: Eurostat (21/03/2019); World: FMI, World Economic Outlook Database; (B) In purchasing power parity

Table 2 presents two scenarios (High and Low) for the evolution of the Portuguese economy in the year 2050, in relation to the main macroeconomic variables and the annual resident population (including the population aged 15-64). While the demographic statistics are based on the year 2017 (the last year for which there are values from the national statistical office - Portugal Statistics), the macroeconomic variables start with the year 2018 (the last year for which there are observed values for the National Accounts - although still preliminary).

Given that there are no population estimates for the year 2018 and the preliminary nature of the macroeconomic variables for 2018 (both nationally and internationally), the decision was made to include this year in the projection period. The present scenario exercise was carried out considering its division into three sub-periods: 2018-2022, 2023-2030 and 2031-2050, taking into account, in particular, the time horizon of several strategic plans for Portugal, namely in the environmental domains.

2. Main differences with regard to the scenarios presented in REA 2017

Several differences separate the scenarios now disclosed from those presented in REA 2017, resulting, in particular, from the following factors:

  • Incorporation of more recent scenarios, both international and for Portugal, with the inclusion of slightly more pessimistic prospects for the short term, but integrating a certain recovery in the medium and long term.
  • Incorporation of new estimates for automation and for the weight it will have in future GDP levels, as well as for the weight that tourism started to have in international and national outlooks.
  • Improvement in the values observed for the Portuguese economy (in the years 2016 and 2017) compared to those estimated in the previous year for those years, with a GDP growth of 1.9% in 2016 (final value) and 2, 8% in 2017, preliminary value (1.5% and 2.5 to 2.7%, respectively, in the previous scenario);
  • Review of the scenarios for Portuguese tourism imports and exports. In the case of tourism imports, it was considered that these would evolve more sharply than that of private consumption, assuming an elasticity of more than one. In the case of tourism exports, a new explanatory equation of this variable was estimated, relating it to world and EU28 GDP;
  • Review of population estimates for Portugal for the most recent years, thus implying a review of the scenarios for the resident population. In addition, the scenarios for migratory balances have been revised in light of the most recent estimates and the changes noted by the Ageing Report from 2015 to 2018. However, the prospect of a gradual reduction of the population remains, taking into account the scenarios of long-term targets for the population drawn up by various institutions, notably the European Commission (The 2018 Aging Report). These scenarios all point to a significant reduction in the working-age population in Portugal by the year 2050, which is a negative factor for long-term economic growth.

The combination of these factors results in changes in the scenarios now being presented, compared to those prepared in 2017, which can be synthesized in:

  • The low scenario for the current year shows a GDP growth rate of 1.5% and 1.1% for the 2018-2022 and 2023-2030 periods respectively, slightly higher than the implicit rates for the same periods (1.1 % and 1.0% respectively);
  • Portugal's GDP growth rates per capita for the Low Scenario are slightly higher over the entire time horizon and slightly more pessimistic for the High Scenario in the 2018-2030 horizon. This evolution is essentially related to the more positive evolution of GDP growth rates for the low scenario and with a lower population decrease in the high scenario (due to the assumption a higher migration surplus).

Table 2 – Scenarios for Portugal

 
 

observed levels (a)

Average Annual variation rates in volume
Observed low scenario high scenario
2017 2001-17 2018-22 2023-30 2031-50 2018-22 2023-30 2031-50
GDP at market prices 179.9 0,5% 1,5% 1,1% 0,7% 2,2% 2,1% 2,0%
Private consumption by residents 118.7 0.6% 1,6% 1,1% 0,7% 2,2% 2,1% 2,0%
Consumption by Residents outside the territory 2.9 1,1% 2,7% 1,3% 0,9% 3,5% 2,5% 2,4%
Consumption by Non-residents within the territory 12.5 3,6% 4,1% 4,0% 3,0% 4,6% 4,5% 4,1%
Private consumption within the territory 128.2 0,8% 1,8% 1,4% 1,1% 2,4% 2,3% 2,3%
Resident population (annual average) 10.3 0,0% -0,3% -0,5% -0,7% -0,1% -0,0% -0,1%
… of which, population from 15 to 64 years old 6.7 -0.2% -0,5% -1,2% -1,5% -0,2% -0,7 -0,8
per capita GDP 17,5 0,4% 1,8% 1,6% 1,5% 2,3% 2,1% 2,2%

Note: (a) Preliminary figures, at current prices. Units: billions of euros for GDP and Consumption; Thousands of euros for per capita GDP; Thousands inhabitants for Population.

Sources for observed values: GDP and Consumption: Statistics Portugal (values from 2000 to 2018): National Accounts (28-02-2019); Population: Statistics Portugal (values from 2000 to 2017), Demographic Statistics 2017 (published in October 31st, 2018).

3. Economic growth and demographic factors

In the long term, economic growth results from the combination of the evolution of the level of productive factors in the economy and the variation in its productivity.

As for the labour factor, there are estimates from the World Economic Prospects (UN, 2017) that the world population will increase from 7 550 million inhabitants in 2017 to 9 772 million inhabitants in 2050. The main responsibility for world population growth will lie with the African and Asian continents. Conversely, the European continent and in particular Portugal will witness a heavy and steady trend of population reduction by 2050. This population reduction stems from the growing aging of the population associated with low fertility levels, leading to negative natural birth rates that are not fully offset by migratory flows. By placing ourselves in the perspective of the Labour factor, we can decompose the long-term GDP growth between projected variation for Employment and labour productivity. On the other hand, the evolution of employment is strongly conditioned in the long term by the variation of the working age population (allied to the evolution of activity rates by age group), while labour productivity growth (measured by the quotient between real GDP and the volume of employment) is related to the evolution of workers' qualifications, productive capital stocks, infrastructure and technological progress (in turn, interdependent factors).

In this respect, it is interesting to analyse the results of the study by the McKinsey Global Institute (MGI, 2017) on the role that automation can play in contributing to an acceleration of labour productivity growth, necessary to enable per capita GDP growth to continue in the absence of workers, which is expected to result from the reduction in the weight of the working-age population in the total population (due to an aging population and a reduction in birth rates). This study, conducted for a group of 20 countries (G19 and Nigeria) in the year 2065, concludes that automation, applied to several activities, could contribute 0.8 to 1.4% for annual productivity growth.

On the other hand, the study by PwC ("Will robots really steal our jobs?", 2018) points out that in 2030, the weight of GDP attributable to automation (artificial intelligence) is about 14% of world GDP, presenting a potential weight of 9% for Southern Europe.

Taking into account the scenarios for the Population aged 15-64 (Portugal) presented in Table 2 and assuming that, in the long term, employment grew at a rate close to that projected for this population (considering it a proxy for growth in the working age population), labour productivity would have to grow at an annual average, over the period 2031-50, of 2.3% in the Low Scenario and 2.8% in the High Scenario, to reach the average growth levels projected for GDP (0.7% in the Low Scenario and 2% in the High Scenario), in order to compensate for the negative effect of the reduction in the active population of the annual average of -1.5% in the low scenario and -0, 8% in the high scenario.

In this way, we can consider that the scenarios presented in this exercise for GDP in Portugal for the 2050 horizon are relatively optimistic (even for the Low Scenario), given the demographic scenarios presented, which are megatrends that are very difficult to reverse except at very high net inflows of immigrants (higher than those admitted in the scenarios presented here).

Chart 1 – Scenarios for GDP

GDP: 109 euros at 2011 prices

 

Considering that these scenarios could serve as a macroeconomic framework for Environmental Plans, it would be preferable to err on the side of caution where the hypotheses for economic growth are concerned, since environmental risks are generally higher in the scenarios (increased consumption of natural resources, increased waste generation and CO2 emissions), although these risks can be mitigated by the implementation of resource efficiency-oriented policies that will dissociate economic growth from materials consumption and waste generation.

4. Methodology and hypotheses considered in the scenarios

4.1. International Scenarios

As with for Portugal, two scenarios (High and Low) for world GDP and the European Union are considered. For its preparation, the projections carried out by various institutions were taken into account, including the IMF's short / medium-term forecasts (WEO, October 2018 b) and The Economist Intelligence Unit’s, EIU (February 2019), OECD’s ( Interim Outlook, March 2019), the World Bank (February 2019), as well as the long-term forecasts of PricewaterhouseCoopers: "The Long View: How will the global economic order change by 2050" (PwC, 2017) (The 2018 Aging Report) and the OECD "Economic Outlook No 103 - July 2018". The World Population Prospects 2017 report was also taken into account for the scenarios of the world population, particularly the working-age population.

The scenarios presented for world GDP were compiled in Purchasing Power Parity and are inspired by the growth rates estimated by PricewaterCoopers (PwC, 2017) and OECD (2018a). For the European Union, the scenarios elaborated under Ageing Report 2018 (European Commission, 2018a) have also been taken into account.

4.2. Scenarios for Portugal

For Portugal, scenarios were prepared for the following variables, for the 2050 horizon:

  • Resident population (annual average);
  • Resident population, from 15 to 64 years old (annual average);
  • Gross Domestic Product at market prices;
  • Private Consumption by residents (households + non-profit institutions serving households);
  • Consumption by Residents outside the economic territory;
  • Consumption by Non-Residents within the economic territory;
  • Private consumption within the economic territory;
  • per capita GDP.

4.2.1. Resident population

The values of the Resident Population for the years 2000 to 2017 are based on the Demographic Statistics of Statistics Portugal. For the year 2018, preliminary data from Statistics Portugal for the number of "live births" and "number of deaths" was used, allowing us to obtain the natural increase for 2018 (INE 2019a).

The total resident population (annual average) for each year t corresponds to the arithmetic mean of the estimated values for the resident population on December 31st in the years t-1 and t.

The values for the total population from 2018 onwards were obtained from annual hypotheses for the migratory balance and the natural growth rate of the population, which took into account the projections of the resident population (2015-2080) published by Statistics Portugal at the end of March 2017 (INE, 2017).

In general terms, it was assumed that population growth would be overall more positive in the High Scenario than in the Low Scenario because of the higher economic growth of the former, which would make the country more attractive in terms of migratory flows, on the one hand, and would create better conditions for encouraging a higher birth rate and lower mortality (due to better access to quality health services) when compared to the Low scenario.

Thus, the following hypotheses were considered for the Low scenario:

  • Null migratory balance in 2018 (-500 in 2019 and 2020, -1000 in 2021, -1500 in 2022 and -3000 in 2023 in the following years), with approximate values (in global terms) to those admitted in the “Low” Scenario for projections of the resident population (2015-2080) released by Statistics Portugal;
  • Natural population growth rate of -0.28% in 2019, -0.31% in 2020, -0.34% in 2021, -0.37% in 2022 and the same as in the Statistics Portugal "Low" Scenario (2017), from 2023 onwards.

As for the High scenario, the hypotheses used were:

  • Positive migratory balance in 2018 (+5000), 7500 in 2019, 12000 in 2020 and then positive at an annual level of +23000 until reaching a migratory balance of + 26000 from 2031 onwards. From 2041 to 2050, the hypothesis of a slight drop in the migratory balance to +25000 was considered (values that are between the hypotheses admitted in the scenarios "Central" and "High" of Statistics Portugal). The improvement when compared to REA 2017 also takes into account the difference between the Ageing Report 2015 and Ageing Report 2018 scenarios for Portugal (European Commission, 2015 and 2018a);
  • Natural growth rate of the population equal to that of the "High" scenario of Statistics Portugal from 2019 onwards.

Population scenarios in the age range of 15 to 64 years were obtained by multiplying the projected values for the Total Population in each scenario by the estimated weight for this age group of the total population in the years 2020, 2030 and 2050, taking into account their respective weight in the scenarios elaborated by Statistics Portugal (2017a) for those years, and the differences regarding the hypotheses admitted for the migratory balances vis a vis the scenarios of Statistics Portugal.

4.2.2. GDP and Private Consumption by Residents

Up to 2018, for these two variables, the most recent annual figures of the National Accounts were used, namely the provisional National Annual Accounts of Statistics Portugal for 2017 and the Preliminary Annual National Accounts for 2018, updated by Statistics Portugal on February 28, 2019 (INE, 2019c).

In preparing the scenarios for these variables, the forecasts and scenarios elaborated for Portugal by several national and international institutions were taken into account, namely those by the Ministry of Finance (2018), Banco de Portugal (2018), the Portuguese Public Finance Council (CFP, 2019), The European Commission (2018b and 2019), the OECD (2018 and 2019), the IMF (2018) and the Roadmap for Carbon Neutrality 2050 (APA, 2019).

For the Low scenario, an annual GDP growth of 1.4% was assumed for 2019 and 2020 and a gradual slowdown to stabilize in the last five years of deregulation.

For the High scenario, an average annual GDP growth of 2.2% was assumed in the period 2018-2022 with a subsequent gradual decline to 2.1% in 2023-2030 and then to 2.0% in 2031-2050.

In the short term, these scenarios took into account the latest projections of both the European Central Bank (ECB March 2019) and the Portuguese Public Finance Council (CFP, 2019), which point to an economic slowdown in the euro area (in the case of the ECB) and in Portugal (in the case of CFP) for the coming years.

The development of these scenarios was based not only on the central long-term scenario developed by the OECD, with a growth of 1.4% in the medium term and 1.3% in the long term, but also on the scenarios of the Roadmap for Carbon Neutrality 2050.The IMF's assertion in the Seventh Post-Program Monitoring Mission held on November 30th, 2018, pointing to a Portuguese GDP growth of around 1.4% over the medium term, was also taken into account.

It should be noted that only in the "High" scenario, there is an assumption of real convergence of the Portuguese economy with the EU-28 (in the period from 2018 to 2030). In the "Low" scenario, on the other hand, only non-divergence is assumed in the period going from 2018 to 2022, admitting a lower growth than the EU in the period 2023 - 2050.

Regarding Private Consumption by Residents, in 2018, growth of 2.5% was observed after a increase of 2.3% in 2017. From 2019 onwards it was considered that the growth rate of private consumption would be equal to the growth rate of GDP for both scenarios. Given the high importance of consumption in the behaviour of GDP, the hypothesis of equal growth rates between these two variables seemed appropriate.

4.2.3. Private consumption within the territory

Private Consumption Within the Territory (TC) is equal to the Private Consumption of Residents (CR), adding the Consumption in Portugal by Non-Residents (CNRT, also known as Tourism Exports) and subtracting Consumption by Residents, carried out abroad (CRE, also known as Tourism Imports).

CT = CR + CNRT - CRE

Until 2018, values provided by Statistics Portugal for these variables were used.

From 2019 onwards, and in both scenarios, it was admitted that tourism imports grew slightly above the growth rate of private consumption, admitting for this purpose an elasticity of tourism demand relative to private consumption of 1,2. This elasticity is plausible and supported historical data and by the scenarios for international tourism which are not foreign to Portugal.

With regard to tourism exports, a new functional relationship was estimated between this variable and the growth of both World GDP and EU-28 GDP. Thus, it became clear that the growth rates of tourism exports have been slightly higher than those allowed in the scenario previously published in the 2017 State of Environment Report (REA 2017). This evolution is not at all strange considering the most recent analyses of the sector, compatible with the study "Tourism Strategy 2027-Leading the Tourism of the Future”, which aims at an annual average growth of 7% by 2027. After 2030 the pattern of evolution is growth at lower rates, in line with the remaining scenarios.

The scenarios for Consumption Within the Territory were then obtained by adding to the projected values for the Residents' Consumption, the values of the scenarios for the Tourism Exports and subtracting the Tourism Imports according to the formula above.


 

5. Sources:

  • Agência Portuguesa do Ambiente (2017), Relatório do Estado do Ambiente 2017.
  • Agência Portuguesa do Ambiente (2019), Roteiro para a Neutralidade Carbónica 2050 - Cenários socioeconómicos de evolução do país no horizonte 2050
  • Banco Central Europeu (2019), ECB staff macroeconomic projections for the euro area, march 2019
  • Banco de Portugal (2018), “Projeções para a Economia Portuguesa: 2018-2021”,  Boletim Económico, dezembro 2018
  • Banco Mundial (2019), Global Economic Prospects – Darkening Skies, janeiro 2019
  • Comissão Europeia (2015), The 2015 Ageing Report, European Economy 3|2015
  • Comissão Europeia (2017), Debt Sustainability Monitor, Institutional Paper 071
  • Comissão Europeia (2018a), The 2018 Ageing Report, Institutional Paper 065
  • Comissão Europeia (2018b), European Economic Forecast – Autumn 2018, European Economy, Institutional Paper 089, November 2018
  • Comissão Europeia (2019), European Economic Forecast – Winter 2018(Interim), European Economy, Institutional Paper 096, February 2019
  • Conselho das Finanças Públicas (2018), Finanças Públicas: Situação e Condicionantes 2018-2022 - Atualização, Relatório do Conselho das Finanças Públicas nº11/2018, setembro de 2018
  • Conselho das Finanças Públicas (2019), Finanças Públicas: Situação e Condicionantes 2019-2023 - Relatório do Conselho das Finanças Públicas nº02/2019, março de 2019
  • EUROSTAT (2019), National Accounts indicator (ESA 2010), updated at 21/03/2019
  • Fundação Francisco Manuel dos Santos, FFMS (2017), Migrações e sustentabilidade Demográfica, setembro 2017
  • FMI (2018a), Portugal: Staff Concluding Statement of the Seventh Post-Program Monitoring Mission, 30 of November 2018
  • FMI (2018b), World Economic Outlook Database, October 2018
    • Instituto Nacional de Estatística (INE, 2017), Projeções da População Residente 2015-2080, INE, 29 de março de 2017
    • Instituto Nacional de Estatística (INE, 2018), Estatísticas Demográficas 2017, outubro de 2018
    • Instituto Nacional de Estatística (INE, 2019a), Estatísticas Vitais 2018 – dados preliminares, 8 de fevereiro de 2019
    • Instituto Nacional de Estatística (2019b), Contas Nacionais Trimestrais – Estimativa Rápida - 4º Trimestre e Ano de 2018, 14 de fevereiro 2019
    •  Instituto Nacional de Estatística (2019c), Contas Nacionais Trimestrais e Anuais Preliminares (base 2011) – 4º Trimestre e Ano de 2018, 28 de fevereiro 2019
    • McKinsey Global Institute (MGI, 2017), A Future that Works: Automation, Employment, and Productivity, January 2017
    • Ministério das Finanças (2018), Orçamento de Estado 2019 – Relatório, outubro 2018.
    • OCDE (2018a), OECD Economic Outlook nº103 - Long-term baseline projections, July 2018
    • OCDE (2018b), OECD Economic Outlook nº104, November 2018
  • OCDE (2019), OECD Portugal Economic Surveys, February 2019
  • ONU (2017), World Population Prospects: The 2017 Revision, Department of Economic and Social Affairs, Population Division
  • PricewaterhouseCoopers (PwC, 2017), The Long View: How will the Global Economic Order change by 2050?, February 2017
  • PricewaterhouseCoopers (PwC, 2018), Will robots really steal our jobs?, 2018
  • The Economist Intelligence Unit (EIU, 2015), Long-term macroeconomic forecasts- Key trends to 2050.
  • The Economist Intelligence Unit (EIU, 2019), Global Outlook – Country Forecast, February 2019
  • Turismo de Portugal (setembro de 2017), Estratégia Turismo 2027 – Liderar o Turismo do Futuro

 

Macroeconomic Scenarios elaborated by the General-Secretariat of the Ministry of the Environment and Energy Transition

March 28th, 2019