Last Friday, the Bank of Portugal (BdP) maintained its 2.1% growth forecast for the Portuguese economy for this year, but slightly revised downwards its growth forecast for next year to 1.2%.
In the December Economic Bulletin, the institute led by Mário Centeno sees the Portuguese economy growing by 2.1% in 2023, predicting a slowdown in growth in 2024 to 1.2%, and a recovery in growth in the following years to 2 .2% in 2025. and 2.0% in 2026.
In October, it pointed to a rate of 2.1% this year, 1.5% in 2024 and 2.1% in 2025, in line with the government’s forecast in the 2024 state budget (OE2024), which foresees a growth of gross domestic product (GDP) is expected. of 2.2% this year and 1.5% in 2024.
Sustaining growth will be the momentum of investment and exports, while “private consumption and public consumption are expected to continue to decline.”
Gross fixed capital formation is expected to accelerate to 2.4% in 2024, with growth of 5.2% and 4.1% in the following two years, while exports are expected to grow at a more moderate pace than in previous years (3.4% on average, in 2023-2026), due to lower dynamics in external demand.
It also forecasts that private consumption “should grow moderately, by 1% in 2023-2024 and by around 1.6% from then on, in a context of increases in real disposable income”. The savings rate is expected to rise in 2024 and remain above 8%.
The BdP emphasizes that “the labor market continues to offer a favorable situation, despite the virtual stabilization of employment, with an expected increase in real wages” and predicts an unemployment rate of 6.5% this year, 7.1% in 2024 and 7.3% in 2025.
The central bank explains that economic growth stagnated in the second and third quarters of 2023 and is expected to maintain low growth in the fourth quarter.
“The recent development of activity reflects the weakness of external demand, the cumulative effects of inflation and the increased restrictiveness of monetary policy, which has been transmitted to the financing conditions of economic actors,” the report explains.
The institute led by Centeno emphasizes that the increase in interest rates is having a faster negative impact on the industrial sector, with the services sector showing greater resilience.
“This resilience of services has supported the maintenance of a favorable labor market situation despite a recent slowdown in employment,” he says.
On a quarterly basis, the report predicts growth will recover “very gradually through 2024.”
Salaries are at the highest level “ever” paid in Portugal, Centeno says
Bank of Portugal (BdP) Governor Mário Centeno said salaries in Portugal are at the highest level ever paid.
“Salaries in Portugal today are also at the highest level ever paid,” he stated.
The head of the Portuguese central bank emphasized that, similar to what is happening in Europe and the world’s largest economies, the labor market in Portugal has been resilient.
“Employment in Portugal is at its highest level ever in the country,” he said.
According to Mário Centeno, real wages as a whole have managed to recover despite the inflation process.
The Bank of Portugal predicts in the Economic Bulletin that the market will continue to show a favorable situation, despite the virtual stabilization of employment, and expects “an increase in real wages”.
Bank of Portugal cuts inflation forecast in 2024 to 2.9%
The Bank of Portugal (BdP) is more optimistic about a fall in inflation in Portugal next year and now forecasts inflation of 2.9%, according to projections released today.
In the December Economic Bulletin, the institution predicts that inflation will continue to show a downward trend, with the annual variation in the Harmonized Consumer Price Index (IHPC) declining from 5.3% in 2023 to 2.9% in 2024 and 2% in 2025 and 2026.
In October, the central bank pointed to interest rates of 5.4% this year, 3.6% in 2024 and 2.1% in 2025.
Contributing to the reduction in inflation is the decline in “production costs – after reversing adverse supply shocks – as well as effective transmission of monetary policy,” the report explains.
Still, he points out that on a quarterly basis, “after reaching 2.6%” in the last three months of 2023, “inflation is expected to show temporarily higher values in 2024, converging to 2% in 2025”.
“The higher values in 2024 are the result of temporary effects on the prices of energy and food goods,” he explains.
For energy products, they reflect “the impact of the expected increase in electricity prices at the beginning of the year and base effects on fuels, as such a significant price drop is not expected in 2024 as that observed in the first half of 2023” .
On the other hand, the country expects the rate of change in food prices to increase in January if zero VAT comes to an end.
Underlying inflation, excluding energy and food, is expected to be on a downward trajectory in 2024, reflecting the lagged effects of cost cuts and tightening monetary policy.
Like the European Central Bank (ECB) for the eurozone, the Bank of Portugal also forecasts that headline inflation “will deliver values consistent with the 2% target in 2025.
Source: DN
