In Portugal, growth in labour productivity has been less than 1% per year on average, reflecting subdued TFP growth. In the decade before joining the euro area both Portugal and Ireland went through a boom, with annual average GDP growth rates at 2.8% and 6.7%, respectively (1990–1998). This strong growth masked substantive differences.
While fiscal policy was pro-cyclical in Portugal, reinforcing domestic demand pressures, it was much more disciplined in Ireland. While growth in unit labour costs and HICP inflation was high in Portugal (7.6% and 6.2% on average between 1990 and 1998, respectively), cost and price pressures remained contained in Ireland (1.4% and 2.3%, respectively).