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Press Release of Banco de Portugal on the December 2017 issue of the Economic Bulletin

Today Banco de Portugal publishes the December 2017 issue of the Economic Bulletin, updating the macroeconomic projections for the 2017-19 period and releasing projections for 2020 for the first time.


Projections for the Portuguese economy 2017-20

Economic activity in Portugal is expected to continue to expand over the projection horizon, at a pace close to that projected for the euro area. Gross domestic product (GDP) is estimated to grow by 2.6% in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020. Figures for the 2017-19 horizon revise upward the projections published by Banco de Portugal in the June and October issues of the Economic Bulletin.

GDP is expected to reach in 2020 a level 4% above the one recorded before the international financial crisis. 

The expansion projected for the Portuguese economy implies that global demand will shift towards more sustainable growth, based on buoyant exports and investment, supported by a favourable international environment.

Projections point to robust export growth up to 2020, reflecting increases in external demand and market share gains. After a 7.7% rise in 2017, exports are projected to increase by 6.5% in 2018, 5.0% in 2019, and 4.1% in 2020. Tourism exports should continue to grow faster than total exports. 

The most dynamic component of global demand will be gross fixed capital formation (GFCF), reflecting in particular the evolution of corporate investment. After an 8.3% increase in 2017, GFCF is expected to grow by 6% in 2018 and 2019 and 5.4% in 2020. Nevertheless, the GFCF level at the end of the horizon should be 11% lower than before the international financial crisis.

Private consumption is expected to grow more slowly than activity, i.e. around 2.1% in 2017 and 2018 and about 1.8% in 2019 and 2020. This is in line with developments in real disposable income and should translate into an overall stable saving rate throughout the projection horizon.

The labour market is projected to recover. Following a 3.1% rise in 2017, employment should continue to grow up to 2020, albeit at a slower pace than GDP (1.6% in 2018, 1.3% in 2019, and 0.9% in 2020). The unemployment rate will maintain a downward trend, reaching 6.1% at the end of the projection horizon.

The Portuguese economy should continue to show positive net lending, which has been the case since 2012. After a slight reduction in 2017, the current and capital account balance should increase to 2.3% of GDP in 2018, standing at 2.2% in the two following years.

A relative stabilisation of inflation is expected over the course of the projection period. Consumer prices are projected to grow by 1.6% in 2017, 1.5% in 2018, 1.4% in 2019, and 1.6% in 2020.

The rebound in economic activity in Portugal has been characterised by a growing reallocation of resources to the tradable goods and services sector. For Portuguese economic growth to be sustainable, it is essential that investment is allocated to areas that contribute to a rise in potential output, notably through an increase in capital per worker and a better allocation of resources. It is also crucial to continue reducing public and private indebtedness, taking advantage of the favourable macroeconomic environment. The high level of long-term unemployment and the decline in the labour force, which will be only partly reversed by 2020, also require an integrated approach, which is instrumental to raising the level of productivity and economic well-being in the long run.

Special issue: “Potential output: challenges and uncertainties”

This issue of the Economic Bulletin includes a special issue – “Potential output: challenges and uncertainties” – and four boxes:

Box 1 | Projection assumptions

Box 2 |The import content of global demand in Portugal

Box 3 | Effect of an interest rate rise on household income: heterogeneity by age class and income quartiles

Box 4 | Macroeconomic impact of the crisis in Catalonia