Portugal, Exchanges Rates and Labour Force

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Submitted By enriquefinch
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Exchange Rates

Portugal belongs to the euro zone since its creation, so the currency is the euro. The following graph shows the evolution of euro since its creation in 1999. However, some countries, like Brazil, started to trade with the new currency when it entered in circulation in 2002.

As we can see, there has been an appreciation of the Euro respect some currencies like UK sterling pound but generally, from 2008 there has been a depreciation of the euro due to the euro crisis. This factor has affected Portugal in the decrease of the trade deficit as we saw previously. However, Portuguese productivity has not increase in the same line as the main countries.
To see how the evolution of real exchange in Portugal within the euro zone, the major factor is the evolution of CPI and Labor productivity:

Observe how Portugal has lost competitiveness against countries like Germany, UK and US. The real exchange rate based on CPI shows a divergence between Portugal and the reference country, Germany, proving the data about the lost in price competitiveness of the country in EU.

Purchase Power Parity

The ppp of Portugal is substantially low compared to those of Italy, Germany or US Here we can see the disparity between countries in the eurozone after ten years of common currency. Portugal ppp is about 80% of the average in the EU27, the 10th lowest in the EU.

Labour Force

Labor force size has remained stable at around 5.5 million – 5.6 million since 2000. The US financial crisis and the Eurozone sovereign crisis have deteriorated the unemployment situation in Portugal. The unemployment rate has increased four folds to 15.3% in 2012 from 4.1% in 2001.

Since 2009 the average real wages have declined at a much faster pace than the decline in labour productivity. This partly stems from the advent of Euro…...

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