The Portuguese state budget for 2024 (OE 2024) is “the most expansionist” among the budget plans and forecasts of the 27 European Union (EU) countries and the boost to public investment should be one of the largest in Europe, but apparently this is not enough to prevent a sharp slowdown in the pace of the economy, the largest in the group of 27, the European Commission (EC) predicts in its new forecasts released this Wednesday.
Portugal has not entered a recession and should avoid a recession this year (the EC says the economy will return to growth in the fourth quarter of this year after a contraction in the third quarter), and should achieve real growth of 2 in 2022 .2%, much better than most European partners.
But next year it will seem like a bucket of cold water. Although the pace of domestic activity continues to grow, the vigilance falls to 1.3%, minus 0.9 percentage points (pp), in what is the largest slowdown in the Union, overcoming the shocks to the growth rate caused by the EC in recent years have been predicted. Spain (minus 0.7 percentage points for 1.7% growth next year) and Greece (minus one-tenth, for 2.3% growth in 2024).
This sharp cooling of the Portuguese economy takes place in an apparently favorable budgetary context, according to the EC. Without the ‘positive signal’ from government funds, the Portuguese brakes could have been even more abrupt.
According to the Commission’s forecasts, grants (repayable money) from the Recovery and Resilience Plan (PRR) and other European funds (regular, for example Portugal 2030) will make the largest contribution to the aforementioned ‘expansionist orientation’ in 2024.
The EC therefore closed these new forecasts on October 31, without taking into account the new risks that may exist in the implementation of the PRR, as reported this week.
The second largest aid comes from the contribution of net primary current expenditure, which is financed by the OE (national resources).
This account does not include the interest charges on the debt (which is increasing).
Despite the strong expected growth of this component of government expenditure compared to the situation in 2023, the contribution of investments in itself remains a residual in the 2024 picture, the EC shows.
According to Brussels, “the majority of EU countries are expected to adopt a contractionary fiscal policy in 2024,” with this indicator expected to “range between a contractionary policy of more than 2.5% of GDP in the Czech Republic and an expansionary policy of more than 2.5% of GDP in the Czech Republic. than 1.5% of GDP in the case of Portugal [que lidera este ranking]”.
In the case of public investments, it is clear that the EC is absorbing the all-or-nothing effort that the government and the Minister of Finance promised in the OE 2024 proposal, yet the country is at the end of the forecast horizon of the Commission (2025) in the group of countries with a lower intensity of public investment in relation to the size of the economy (GDP).
“At the end of the forecast horizon, national budgets in most EU countries are expected to allocate more resources to investments than before the pandemic, with Slovenia, Portugal and Italy expected to record the largest increases” in this indicator.
As mentioned, in the case of Portugal and other more backward countries, this is only possible with a “high absorption” of PRR funds, namely subsidies. Portugal will be the third country that can export or absorb the most, coming in third after Greece and Croatia.
However, this does not protect the country from lagging behind in public investment. From 2015 to 2019, the national average was the lowest in the Eurozone, with only 1.8% of GDP in public investment (the Euro average was 2.7%).
The new effort will allow Portugal to reach 2024 with public investment of 3.5% of GDP and 2025 with 3.6%. Problem: Myth continues after countries with which it still competes in several value added categories, such as Slovenia (public investment 5.7% of GDP), Slovakia (5.7%), Latvia (6.7%), Croatia (4.4%), Finland (4.7%) or even Greece (4.7%).
As mentioned, the national and international situation is currently not the most favorable and the country still has one of the highest debts in Europe.
In this context, the government insists that the Stability Pact must be respected and that the debt must fall much further, as it remains far from 60% of GDP (it is 103%).
There may be European funds to expand the budget, but the global fiscal effort is aimed at greater consolidation.
In 2024, the EC predicts, only four countries in Europe will have a budget surplus. Portugal (with 0.1% of GDP, or 0.2% according to the financial forecast), Ireland (positive balance of 0.6%), Denmark (1.8%) and Cyprus (2.1%).
The economy is weakening
The growth of the Portuguese economy will be weaker than expected and than forecast by the government and the Ministry of Finance in the 2024 state budget proposal, the European Commission says in the new autumn forecasts.
And he also states that the debt ratio will not fall below 100%, as the guardianship of Fernando Medina says.
According to Brussels, Portugal should grow by 2.2% this year, two tenths less than in the spring forecasts (May) and in 2024 the economy should grow by only 1.3% in real terms, well below the 1.8% expected by the EC had estimated in May. the 1.5% that the government has included in the budget proposal to be approved on November 29.
On inflation, the general outlook is for price growth to be moderate, from 5.5% this year to 3.2% inflation next year, a trend that is widespread in the Eurozone (5.6% this year and 3 .2% in 2024).
In doing so, the EC supports the arguments of the European Central Bank (ECB), which advocates maintaining the tightening of interest rates (which are at the maximum level) for a longer period of time.
According to Brussels, euro inflation will still be 2.2% (annual average) in 2025, above the 2% threshold that the ECB wants to achieve.
In Portugal, the EC notes that private consumption and investment “fell in the second quarter, reflecting the increase in interest rates and confidence indicators.”
Exports are still somewhat strong, but are mainly helped by tourism. A word of caution, however: “The growth rate of tourism slowed substantially over the summer, although daily flight statistics indicate a slight acceleration in October,” Brussels notes.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
