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Banco de Portugal releases the December 2016 issue of the Economic Bulletin

Banco de Portugal publishes today the December 2016 issue of the Economic Bulletin. The Bulletin updates macroeconomic projections for 2016-18, releasing for the first time projections for 2019.

Projections for the Portuguese economy 2016-19

Over the 2016-19 projection horizon the Portuguese economy is expected to continue on the moderate recovery path of the most recent years. After a growth projection of 1.2 per cent in 2016, the gross domestic product is likely to accelerate to 1.4 per cent in 2017, stabilising its growth pace at 1.5 per cent in the two following years. 

Over the projection horizon, exports of goods and services are likely to grow more than external demand, as seen in the past few years, continuing to be the overall demand component with the highest contribution to activity growth. As regards domestic demand, projections point to a recomposition characterised by a moderation of private consumption and a recovery of gross fixed capital formation (GFCF), particularly of the corporate component, following a fall in 2016. 

These features are consistent with a more sustained growth pattern, characterised by a further reorientation of resources towards sectors more exposed to international competition and also more productive, the maintenance of a surplus in external accounts and additional progress in reducing non-financial private sector’s indebtedness. In tandem with the recovery of activity, there will be a gradual improvement of the labour market situation. 

Inflation is likely to increase over the projection horizon, standing at 1.5 per cent in 2019, which reflects domestic and external upward pressures on prices. 

Current projections point to GDP growth in 2016 slightly above that underlying projections in the October issue of the Economic Bulletin (0.1 p.p.). Vis-à-vis the June 2016 issue of the Economic Bulletin, projections for GDP growth in 2016 and 2017 have been revised downwards (0.1 p.p. in 2016 and 0.2 p.p. in 2017), due to the outlook for a more moderate evolution of domestic demand.

Given the persistence of structural constraints to Portuguese economic growth, it is instrumental that the structural reform process is deepened so as to increase incentives to innovation, mobility of productive resources and investment in human and physical capital. In addition, it is important to pursue measures to reduce specific vulnerabilities of the banking and financial sector. Finally, additional fiscal consolidation is key to ensure that the level of public indebtedness shows a sustained downward path that is robust to adverse shocks. The temporary nature of the current broad set of non-standard monetary policy measures in the euro area reinforces the urgency and importance of structural progress in these different fields.

Special issue: 'Living below zero: monetary policy transmission under negative interest rates'

To give context to recent developments in interest rates, the Economic Bulletin includes a special issue: 'Living below zero: monetary policy transmission under negative interest rates'. This issue identifies and discusses some of the questions raised by the European Central Bank’s recent monetary policy decisions.

This Economic Bulletin also includes the following boxes:

Box 1| Projection assumptions

Box 2| Impact of uncertainty measures on the Portuguese economy