The Portuguese economy is currently once again on the brink of stagnation, the Bank of Portugal (BdP) revealed yesterday.
According to the Daily Economic Activity Indicator, the weekly moving average that measures the economy’s progress showed growth of just 0.6% in the week ending Feb. 19, compared to the same period last year.
In other words, a year after Russia’s war against Ukraine began, the aggressive rise in inflation and the reaction of the European Central Bank (ECB), which also began to accelerate interest rate hikes to cool prices, negative consequences for national growth are already visible.
All other European countries complain about the same thing. The energy and geopolitical crisis started to hit in earnest.
The year 2023 even started relatively well, despite some bumps, but since the beginning of February the decline in the expansion of activity has been notorious.
Earlier this month, the economy recovered after a year-on-year growth (weekly moving average) of almost 10% on February 4, but has only lost momentum since then.
As mentioned, the most recent reading of this central bank indicator tells us that Portugal will grow by just 0.6% in mid-February and that the economy has contracted again over the past four days (February 16-19).
It is necessary to go back to the eve of last Christmas to find more consecutive days of retreat in activity, the BdP data shows.
Measure electricity, gas, tax, and card purchases in near real-time
This high-frequency indicator, calculated by the bank headed by Mário Centeno, “covers several dimensions related to economic activity in Portugal”.
It summarizes information “on the following day-to-day variables: road traffic of heavy-duty vehicles on highways, consumption of electricity and natural gas, cargo and mail unloaded at national airports, and card purchases in Portugal by residents and non-residents,” he explains. . the BDP.
Looking back, since the day of the Russian invasion, it is clear that the progress of gross domestic product (GDP), an indicator calculated by the National Institute of Statistics (INE), is also slowing markedly.
In the first quarter of 2022, the economy grew by 12% in real terms compared to the same period in 2021 (a time particularly marked by the deadliest phase of the pandemic), but from then on the pace of recovery lost momentum .
Domestic product still improved by 7.4% in the second quarter, but fell again to 4.9% in the third and 3.1% in the last three months of the year.
This growth profile allowed the economy to grow by a whopping 6.7% last year, largely supported by inflation (which boosted many companies’ and industries’ billing and collection of taxes and contributions).
And this year the situation really changes. The European Commission, which published new forecasts for all countries of the European Union last week, expects growth of only 1% in 2023, in the case of Portugal.
And he says the national economy is stagnant in the first quarter compared to the last three months of 2022.
In any case, in an environment of high uncertainty, everything points to the country’s success in avoiding a technical recession (two quarters in a row of three-month chained GDP contraction). But the damage has been done and the consequences are becoming visible.
Investments are marking time, households are curbing consumption, bank payments are soaring, disposable income is falling rapidly, especially among the poorest and lower middle classes, according to several recent surveys from the BdP to the EC.
The near future doesn’t look good either as the ECB will continue to raise interest rates, further tightening debt, credit growth and many investment projects. Decisions are postponed and the confidence of many entrepreneurs is tied to this crisis environment.
In addition, there are strong constraints at the public sector level. The government wants to keep the “correct books” and further reduce the deficit and debt, but this could imply a bill on growth.
For example, the Recovery and Resilience Plan (PRR), a package worth 16.6 billion euros (to be implemented until 2026), has been a long time coming.
“Macro scenario full of uncertainty”
BPI’s economic research firm states that “we expect the Portuguese economy to grow at 1% for the whole of 2023, a significant slowdown compared to growth over the past two years, which will largely reflect a correction in light of the impact of the pandemic on activity in 2020-21, and also reflects the full impact of rising eurozone interest rates and the cumulative loss of purchasing power.”
“As has been constant in recent years, the macro scenario is full of uncertainty and 2023 is no different, with the risks currently balanced, but with the sense that something could go wrong (again),” said Teresa Gil Pinheiro, economist senior at BPI.
“Will the current cold spell in Europe last longer, putting pressure on prices? And will China’s openness be reflected in the rise in energy prices? In this case, pressure on prices would increase and inflation would be higher the central bank would tend to be more restrictive, limiting consumption and investment further. Let’s hope not,” the analyst concludes.
For BPI experts: “Even if the forecast of economic growth (1% in 2023) is maintained, it is likely that the labor market will undergo a correction in the coming months”.
“We estimate that the unemployment rate will increase slightly to 6.4% in 2023 [da população ativa] and the creation of new jobs is gaining momentum”.
“However, the labor shortage reported by various sectors and the fact that we do not expect a contraction in the economy will be factors supporting the Portuguese labor market,” add economists from the private bank.
On the positive side, the economy appears to be able to continue to rely on a few oxygen bags.
Tourism continues to flourish and major events are scheduled (World Youth Day, Web Summit, etc.). And the Mais Habitação package, with which the government estimates that it will inject at least more than 900 million euros into the economy.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
