Government believes in 6.4% growth in GDP this year

Portugal’s GDP growth: central bank ‘more pessimistic”

Central Bank’s outlook comes days before government submits 2024 State budget to parliament

The Bank of Portugal is more pessimistic about the growth of the Portuguese economy, writes Lusa today. 

The bank is “now forecasting an expansion of the Gross Domestic Product (GDP) of 2.1% this year and 1.5% in 2024”.

Its October “Economic Bulletin” presented this morning at the Money Museum in Lisbon, saw the institution cut its previous economic growth forecasts (presented in June) by 0.6 percentage points (pp.) for this year and 0.9 pp. for next.

The forecast, which Lusa says “has become the most pessimistic”, remains above the Ministry of Finance’s official forecast of 1.8% for this year, but which the government has already signalled could be revised upwards in the 2024 State budget.

Just a few days before the government submits its budget to parliament, the banking regulator is thus putting forward a more pessimistic forecast for next year than the one put forward by the government (of 2%) in the ‘Stability Programme’.

“After the dynamism at the start of 2023, economic activity will have stagnated in the second and third quarters and should maintain weak growth until the end of the year,” the Bank of Portugal explains.

According to the central bank, the economic slowdown reflects less dynamism in the main trading partners, the cumulative effects of inflation and the tightening of monetary policy – which has led to a worsening of financial conditions in the eurozone and in Portugal.

Compared to June, this more unfavourable evolution is explained by the “behaviour of exports and, to a lesser extent, private consumption and gross fixed capital formation (GFCF), especially public”, says the bank.

The downward revision of growth for next year  is mainly the result of a less favourable performance of activity throughout this year and, “to a lesser extent”, the revision of the framework assumptions and a weaker performance of exports at the start of the year.

The bank warns that the transmission of policy interest rate rises to the financial conditions faced by households and companies will continue to limit activity in 2024 and 2025. It believes, however, that these effects will be “partially offset by the favourable impact of the gradual reduction in inflation on household purchasing power, the acceleration of inflows of EU funds and the chance of greater dynamism in external demand”.

Source material: LUSA