But Portugal still at “very low levels of (investor) confidence”
The governor of the Bank of Portugal, Mario Centeno, said on today that the strength of the labour market is what prevents a stagflation scenario in Portugal at a time when inflation is limiting investment.
In his speech at the 2022 annual meeting of the Portuguese Diaspora Council in Cascais – where he pointed out that “it is necessary to resume investment levels” – Centeno said that investor confidence “has not yet recovered from the beginning of the war”.
“Unlike Covid-19, where, three months later, confidence levels were already – still without vaccines – at the levels before the start of the pandemic, confidence in the context of the war, perhaps because the bombs are heard more than the spread of the virus, has not recovered (…) We are still at very low levels of confidence”.
Faced with the reduction in investment, Centeno acknowledged that “it is the labour market that sustains the situation of the Portuguese economy.
“The inflation scenario does not simplify decision-making by investors. All this contributes to a scenario that takes us away from stagflation only because of the labour market”.
Without this, Mário Centeno suggested the economy would be in a worse place, “given the very low growth and very high inflation.”
Portugal in fact has “a privileged position” when it comes to facing the two crises of the times (the war in Ukraine, and inflation).
“We project sustained growth of the economy over the forecast horizon” of 2023, 2024 and 2025 – and the country is “no longer in the recovery phase”, he said, more in a “slowdown in economic growth”.
“In a context of inflation and in a context of military conflict on the borders of the economic space we inhabit, it is something truly extraordinary in any case,” said the central bank governor.
In that sense, Portugal has a real GDP above its potential GDP, similarly to 2019, being “perhaps at the highest point of this economic cycle” – a position that the Portuguese economy must take advantage of, particularly in investment, which is “the most fragile part in the growth dynamic”.
“For the first time since 2015, growth grew less than private consumption in Portugal in 2022. The Portuguese economy is no longer the economy that grew based on consumption, it has changed in recent years,” he added.