The majority of Portuguese families will reach 2024 with shaky disposable income, without financial slack and with the savings obtained during the post-pandemic recovery completely ‘exhausted’. All this reflects a situation of very high inflation and interest rates at the highest levels. since the existence of the euro, the Public Finance Council (CFP) indicates in a study published this Thursday (21).
Inflation, which, as in 2022, again pushed up tax and premium income this year, caused a very pronounced positive deviation in the balance of the government accounts: instead of a budget deficit of 0.9% of the gross domestic product (GDP), the government must ultimately produce a historic surplus of 0.9%. This concerns a deviation (a so-called slack) of 1.8 percentage points, approximately 4.5 billion euros in 2023.
Families are coming under financial pressure despite government support and things won’t be much better in 2024.
As the CFP says in the study updating the budget outlook from 2023 to 2027, “the impact of the increase in interest rates, according to the President of the European Central Bank (ECB), should last for a sufficiently long time” and as always with some delay is felt, this effect will “determine the financial situation of households, given the large share of loans contracted in the Portuguese economy under a variable interest rate regime”.
In this more aggressive environment, nominal disposable income is expected to slow in 2023, in a context of reduced job creation, despite expectations of growth in average wages per employee, which should translate into a reduction in the savings rate, which is already was previously predicted. reached a historically low level in 2022, marking the depletion of savings accumulated during the post-pandemic recovery process,” warns the entity chaired by Nazaré Costa Cabral.
Also according to the Finance Council, private consumption (in real terms, excluding inflation) is “the most dynamic component of domestic demand, with real growth of 1.5% expected in 2023”, but the truth is that this is the largest component. of demand will slow down sharply, around 4.3 percentage points (pp) compared to 2022, the CFP says.
“This evolution largely reflects the effects of the persistently high inflation during this period, especially on underlying inflation [sem contar com energia e alimentos]which continue to severely punish families and undermine their purchasing power and confidence,” notes the entity that evaluates Portuguese fiscal policy.
“This behavior also reflects the resulting increase in benchmark interest rates due to the increased restrictiveness of monetary policy, which continues to penalize private consumption.” Then more of the same. According to the CFP, the slowdown in growth should continue in 2024, with “a new slowdown in private consumption growth to 1.2% (-0.3 percentage points compared to the estimate presented for 2023), still due to a new expected increase in interest rates. which will continue to severely limit household consumption decisions.”
New budget manna in 2023
According to the new study, growth in the Portuguese economy this year well above expectations – especially at the start of 2023 and still largely driven by inflation, which has boosted tax and premium revenues – should allow the government achieve a historic budget surplus. shows the Council.
As mentioned, the new budget figure will be equal to 0.9% of GDP, i.e. well above the target set in the state budget adopted for 2023 (OE2023), which pointed to a deficit of 0.9% of GDP on the national accounts.
The slack (a term that Finance Minister Fernando Medina refuses to use) in this year’s implementation will therefore be around an impressive 1.8% of GDP compared to the budget and a further 1.4% to 1 .5% compared to the revised budget value. OE2023 target in the Stability Programme, in April (Medina lowered the deficit target to 0.4% at the time).
As mentioned, according to calculations by Dinheiro Vivo (DV), the positive deviation amounts to around 4.5 billion euros, which will allow the PS government to bring the public accounts back into the field of positive balances, after having entered 2022 with a deficit of only 0.4 has closed. %, also the result of the inflation situation, despite the serious crisis that has occurred.
During a press conference, Nazaré Costa Cabral warned that the account surplus could be large but is “unstable and fragile”, taking into account the current inflation situation and the “urgent” need to further reduce the debt burden, which remains very high . high (almost 105% of GDP at the end of this year, according to the CFP).
“As long as we have a very high public debt, we must continue to reduce it” and this means running consecutive annual surpluses and “avoiding the temptation to have an election budget in 2024,” Costa Cabral asked.
Dinheiro Vivo journalist
Source: DN
