The Portuguese economy is expected to experience the second largest slowdown in economic growth over the next two years (2023 and 2024), according to the European Commission’s (EC) new spring forecasts, released yesterday. The largest slowdown should be in Ireland, the third largest in Greece.
The EC also points out in the new study that the country is already showing signs of “cooling down” in the labor market, along with four and five other European Union (EU) member states.
Growth in 2022 was quite strong (6.7%, almost double the pace of the Eurozone) driven by very high inflation (8.1%, slightly below the Eurozone’s 8.4%), a framework that enabled the government to achieve a very low government deficit (0.4% of GDP – gross domestic product), supported by high tax collection.
Speaking at the press conference presenting the Spring 2023 forecast, Paolo Gentiloni, the European Commissioner for Economy, believed that this inflationary effect will continue this year, leading Fernando Medina’s finance ministry, if all goes according to plan, to an even lower deficit can achieve, in the order of 0.1% of GDP.
For this, Portugal received some praise from Italy’s former finance minister. But there are latent problems.
The recovery continues, but as mentioned, the economy will adjust sharply downwards after the boom of 2022.
This year the country will grow by 2.3% in real terms (the EC more than doubled the February forecast, which was only 1%) and the following year, supported by immense tourism and the implementation of the Recovery and Resilience Plan (PRR), European funds that would reach cruising speed once and for all (this is the working hypothesis of the EC).
Too much public investment, labor market fatigue
Public investment is picking up, but private consumption is not. And so the economy slows down again.
According to Brussels, the labor market is already showing signs of fatigue. “In some countries, the slowdown towards the end of the year has left its mark on the labor market.”
In countries such as “Czech Republic, Latvia, Lithuania, Hungary and Portugal, employment is falling or stabilizing already throughout 2022” and unemployment rates are starting to rise “in Hungary, Portugal, Luxembourg, Lithuania and Cyprus”.
For the EC, this “suggests that labor markets in these economies are starting to cool”.
Brussels also warned that Portuguese households, which are among the most exposed to variable-rate mortgages, will feel even more the weight of deteriorating debt, reducing purchasing power (along with inflation, which will remain high).
This context immediately tends to weigh on private consumption, which should grow by only 0.5% this year in real terms, after an impressive 5.8% last year.
For example, the combined real economic growth (of GDP) for 2023 and 2024 will be 4.9 percentage points lower than for 2022. In other words, it almost erases the gains in domestic wealth made last year, thanks in large part to the inflationary bubble. . Private consumption is usually worth about two-thirds of GDP.
But this high-inflation environment should continue throughout the year, causing tax revenues to grow a little more, which will further reduce the deficit, as mentioned above.
The lowest deficit of those with a deficiency
If so, of the countries still recording this deficit, Portugal will have the lowest level in the Eurozone and the third highest budget balance in the region. Ireland and Cyprus will succeed in achieving budget surpluses despite the crisis.
According to the EC, the compression of the Portuguese deficit will be even stronger compared to the Ministry of Finance’s plan, by Fernando Medina, which points to 0.4% this year. And that even happens while retaining part of the support measures against energy costs. Brussels expects that these will only disappear completely in 2024.
“Portugal’s government deficit is expected to fall to 0.1% of GDP in 2023 and remain unchanged in 2024” and that “government revenue growth will continue in 2023 and slow slightly in 2024”.
“Tax revenues are the main driver of this growth, especially indirect taxes [como o IVA]due to persistently high prices,” the European executive said.
And “public spending is predicted to continue to increase” and “upward pressure from social support and the wage bill will continue” until the end of next year, Brussels adds.
Weaknesses and a bike
The Portuguese economy has several vulnerabilities and one of the most notable in the Commission’s new forecasts is the high exposure of many households to the sudden and sharp rise in interest rates, particularly individuals who have recently taken out loans to buy a home. to buy.
“Some countries have a high percentage of floating rate home loans, such as Finland, Portugal, Cyprus, the Baltic States, Sweden, Poland, Romania and Bulgaria, where households may experience loss of income, with possible consequences for consumption,” the EC regrets.
According to the Bank of Portugal, in the most recent financial stability report published in Portugal last week, “the stock of floating rate home loans continues to predominate (about 90% of the total)”.
And, even worse, “more recently, the six-month index [Euribor a seis meses] has gained ground in new lending, to the detriment of the 12-month index,” said the central bank led by Mário Centeno.
In this context, Portugal recorded an average loss of wage purchasing power (due to inflation) of around 0.2% last year.
In any case, it was below the eurozone average, where the actual erosion was 2.3%.
There may be a slight recovery this year, which will be around 1.3%, but next year the pace of the predicted real average salary per employee will collapse again and practically stagnate (0.2%), the EC says.
António Costa, the Prime Minister, reacted with some caution.
“If we have good news in the economy, it shouldn’t make us restless. On the contrary, it should make us understand the following: Like cycling, we keep pedaling and the economy keeps growing, or if we stop, we keep pedaling .” the bicycle does not run and may even derail,” said the head of government, quoted by Lusa.
Luis Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
