Household behaviour in a monetary union: what can we learn from the case of Portugal?

Portuguese household behaviour has been buoyant for most of the last ten years. Consumption growth has been an important contributor to Portugal’s GDP growth. At the same time, the financial position of households has changed with the savings rate on a downward trend and indebtedness growing rapidly. In 2004, the ratio of household debt relative to disposable income was just under 120%, one of the highest in the euro area, up sharply from under 40% in 1995. Developments in both credit demand and supply seem to have played a role in this pattern change over the last ten years.

This note analyses Portugal’s household behaviour over the last decade illustrating possible implications for a catching-up economy acceding a monetary union.