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Five things I’ve learned on the ground in Portugal

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July 10, 2012
Porto, Portugal

Portugal is a country that I’ve always enjoyed, full of warm, welcoming people, excellent wine, and great weather.

I came to Porto, the country’s second largest city of some 1.5 million, to get a sense of what’s been happening since the eurocalypse.

1. Capitulation of hope

Excluding the city’s still-bustling tourist areas, it’s very quiet around the city.

Street-level retail shops and restaurants are either devoid of customers or have been vacated. On many blocks I’ve seen more “for lease” signs than operating businesses.

Officially, the unemployment rate is 15.2% in Portugal, and the economy will contract 3% this year… yet the clear lack of economic activity suggests the real figures are much greater.

Without doubt, reality has set in. Locals have capitulated ‘hope’ that the good times will magically re-appear and have adjusted their habits accordingly.

2. Austerity: too little, too late

For the last several years, national government spending has contributed nearly 40% of Portugal’s GDP.  In Europe, this has only been bested by (you guessed it) Greece and Ireland.

Including local and provincial governments, in fact, total government expenditure here surpasses 50% of GDP. It’s insane.

Under the terms of their bail-out last year, they’ve been forced to cut back. Sort of.

The government recently tried reforming public worker benefits, for example. But Portugal’s Constitutional Court overturned the move, ruling that cutting public workers’ Christmas bonuses and generous paid holidays is unconstitutional.

They’ve also made attempts at overhauling the broken pension system. But then the president himself, Mr. Anibal Cavaco Silva, began complaining about his own pension being trimmed.

You really can’t make this stuff up.

All the national and local governments have really been able to do is cut small, rounding-error line items from the budget… landscaping, trash collection, things like that.

You can see the results on the streets– the grass is growing knee-high in public areas away from Porto’s main tourist spots.

But none of this is going to make a dent in the budget. ‘Austerity’ here is truly meaningless, and these guys are going to slide right back into insolvency. I’d expect Portugal’s 10-year yield (currently 10.3%) to rise.

3. Absurdly cheap.

Portugal is now one of the cheapest civilized places in the world to live. As part of the contraction, both asset prices and many retail prices in Portugal have dropped substantially.

The middle/upper-middle class segments of the real estate market have gone no-bid, and investment property owners with mortgages to service are getting desperate.

To give you an idea, I’m renting a spacious 3-bedroom, 2000 square foot luxury apartment in a new(ish) development that was completed during the real estate boom a few years ago. It’s costing me a whopping $60/night.

The complex is a ghost town. I’ve seen four human beings in as many days, and as I stand on the terrace surveying the other units, most of what I see is vacant.

Property owners I’ve spoken to say that they don’t want to rent to locals under a long-term lease because the locals can’t pay. And when they stop paying, the government makes eviction very difficult.

This makes their market of potential lessees quite small, hence cheap prices.

4. Gold businesses are doing well

All over town you can see these new ‘cash for gold’ type franchises being set up. It’s crazy, you’ll even see two or three of them on the same block across the street from one another. It’s like Starbucks.

Many of them are doing brisk business as locals look to raise spare cash. And the businesses are only buying gold, not selling.

5. Lack of productive youth

There is a noticeable, disproportionate lack of young people between the ages of 15 to 35 or so.

It seems that much of Portugal’s youth is heading to greener pastures, most notably to Brazil where they can easily obtain residency, find a job, and integrate into society… or to frontier markets like Angola (a former colony with a booming resource economy).

No doubt, people with skills and courage are getting the hell out.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • Allan

    Simon, where did you find that rental?  Was it listed on a website somewhere?

    -Allan

  • pepe lucho

    Simon,

    I’m also curious about the rental, can you let us know more ?

  • http://evilspeculator.com molecool

    I’m in Spain – similar situation. Renting a luxury piso in the center for next to nothing.

    • http://twitter.com/MichaelPorfirio Michael Mason

      Donde?

  • http://www.facebook.com/caroline.karlsson.7370 Caroline Karlsson

    I’m Swedish but lived in Porto between 2006 and 2010. I was there visiting friends this June when they are celebrating the city’s saint, Sao Joao. According to my friends, Porto is still doing quite ok, but in the smaller towns / villages in the outskirts of Porto the situation has become much worse and unemployment is more like 18-20%. A friend of mine who has a factory in one of those smaller towns has even started to feel a bit threatened by some people living there….It’s true that many Portuguese move on to other countries, also to Switzerland. But I’ve heard it’s not so easy for the Portuguese in general to move to Brazil, with work permit and so on. For Brazilians on the other hand it’s no problem to go to Portugal.
    Otherwise Porto is great and I totally agree with you that the Portuguese wines are excellent!

  • Nuno F

    About Austerity – it’s important to note that public spending and austerity should be seen in detail so to truly grasp the problem. Many public workers have seen their benefits cut, including holiday and Christmas bonuses to some extent, but not all of them. The lower you are in the pyramid the more you feel those cuts. In a very popular video that can be seen on youtube where a lawyer and economist, with connections to the political party in office and the Portuguese Central Bank (Banco de Portugal), regards a income lower than 1000€ (with taxes) poverty.The reality is that many live with that kind of income and some even consider themselves lucky with that. It’s not considered (and never was) a truly low income.Also many are not immigrating but returning to live with their parents – not just the ones in their 20/30, but people in their 40’s, married and with kids either because they loosed their jobs or just because it’s more logical to do so financially.In the other hand many high in the social ladder, including higher ranking public workers like judges, administrators, government appointed officials and so on, still have their cling to some, if not all, of their benefits and accumulate, as before, pensions from both public and private office.As for rents – many landlords have chosen to lower or keep their rent not just because it’s safer (better to have a tenant that pays than one that doesn’t) but because many people can’t buy a house. 

  • David

    You wrote

    “To give you an idea, I’m renting a spacious 3-bedroom, 2000 square
    foot luxury apartment in a new(ish) development that was completed
    during the real estate boom a few years ago. It’s costing me a whopping
    $60/night.”

    and u call it cheap????? how much is the avg salary there???

    • http://www.facebook.com/caroline.karlsson.7370 Caroline Karlsson

       I don’t know the avg salary, but when I lived in Porto, I think the minimum salary was about 460€/ month (then you had 14 paid months). Many people with this income had to have 2 jobs. Like Nuno here below says, most people have incomes lower than 1000€….

  • Stanley J G Crouch

    Sounds like they’ll have no trouble servicing sovereign debt…

  • Deucy14

    Of the same nature as this discussion, see the article on La Linea, Spain. It is of the same nature as this discussion.  Must be an Iberian thing.
    http://www.spiegel.de/international/europe/gibraltar-s-spanish-neighbor-la-linea-in-crisis-a-840854.html

  • Pedro Alves

    Simon,
    I can guarantee to you that if the “welcoming people” from Portugal had seen your idiotic, nonfactual and superficial article you would no longer be welcomed in Portugal.

    • Sevi Luki

      And i guarantee you have no proper kmowledge Of your Own country . And if your Own people know that they would have get your portegues citizenship away From you .

  • Pingback: Vooraf… | The Porto Crisis()

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