The economy

Developments in the Portuguese economy in 2022 were influenced by a combination of the effects of the recovery from the pandemic crisis, the start of Russia’s atrocious invasion of Ukraine and most central banks’ changes to monetary policy.

The invasion led to a very sharp increase in energy and food prices. This increase spread to other goods and services in the economy. The average annual inflation rate reached 8.1% in Portugal and 8.4% in the euro area.

The European Central Bank (ECB) reversed its accommodative monetary policy stance, launching a series of key interest rate hikes in July. 

Despite the rise in inflation and changes in financing conditions, the Portuguese economy was backed up by a sound macroeconomic framework. Compared with pre-pandemic figures, economic activity grew slightly more in Portugal than in the euro area.

Exports were the most buoyant component of overall demand, rising by 16.7%, with an increase of 5.1% in goods and 43.1% in services, driven by strong tourism-related demand. 

Employment grew by 2% and the unemployment rate stood at 6%, below pre-pandemic levels and the natural unemployment rate. Wages per employee grew by 6.1%, reaching 7.6% in the private sector. 

The general government deficit stood at 0.4% of GDP and the government debt ratio was 113.9% of GDP. 

The Bank

Against the background of a broad-based, persistent rise in prices, the Banco de Portugal focused its analyses and research to support the design of public policies and economic agents’ behaviour. 

Aiming to enhance the resilience of the financial system and preventing households from defaulting, the Bank recommended new limits to the maximum maturity of new credit for house purchase. It assessed the business model, internal governance and financial resilience of supervised institutions. It also provided advice on the definition and implementation of the legal framework to mitigate the effects of rising interest rates on credit agreements.

The Banco de Portugal maintained its commitment to strengthening the preventive effectiveness of money laundering and terrorist financing measures. The resolution plans for institutions for which it is directly responsible have been updated and further developed. 

The economic, statistical and financial literacy of citizens has been strengthened and extended, in line with the strategic guideline of outreach to society.

Market infrastructures, on which  the transfer of financial resources to the economy hinge, ran smoothly. The implementation of the National Strategy for Retail Payments has been completed and a market contact group on the digital euro has been set up. 

The Bank’s structure and how it operates were changed to better meet new challenges related to analysing vast quantities of data, risk management and technological innovation. It also took measures to promote environmental sustainability in managing the portfolio of own investment assets, cash issuance and building management.

At the end of 2022, the Banco de Portugal’s balance sheet totalled €198 billion, €21 billion less than at the end of 2021, interrupting the growth cycle of the past seven years. These developments mainly reflected a decline in funding for credit institutions, fostered by changes to euro area monetary policy.

Income before provisions and taxes totalled €668 million, €73 million less than in 2021. This decline mainly reflects the impact of the sharp rise in interest rates from the second half of the year onwards. 

The increase in realised gains/losses arising from financial operations within the scope of foreign reserves and euro assets (by €159 million, €84 million more than in 2021) and the extraordinary result from the final expiry of the time limit for exchanging escudo banknotes (€94 million) made a positive contribution.

Administrative expenses amounted to €196 million, remaining stable from 2021 (+0.4%) and reflecting the pursuit of rationalisation and containment of expenses. 

Considering that the balance sheet structure risk could continue to materialise in the coming years, the Board of Directors decided to increase the general risk provision by €235 million.

After income tax, net profit for the year totalled €297 million (€508 million in 2021). This made it possible to distribute dividends to the State to the amount of €238 million. Including income tax, €371 million were distributed to the State.