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

Today Banco de Portugal publishes the June 2017 issue of the Economic Bulletin. The Bulletin updates macroeconomic projections for the 2017-19 period. 

 

Projections for the Portuguese economy 2017-19

Economic activity in Portugal is expected to grow over the projection horizon at a faster pace than that of the euro area and that recorded since the start of the economic recovery. Following 1.4% growth in 2016, gross domestic product (GDP) is expected to rise by 2.5% in 2017, 2.0% in 2018 and 1.8% in 2019, i.e. more than projected by Banco de Portugal in March. In 2019 the Portuguese GDP level is expected to exceed that observed before the international financial crisis.

The recovery of economic activity over the projection horizon is likely to result from a greater dynamics of exports, in the context of an improved international framework, and from the recovery of domestic demand, namely investment.

A strong acceleration of exports of goods and services is anticipated in 2017, as well as robust growth in the two following years, with further market share gains.

As regards domestic demand, private consumption growth should be somewhat lower than activity growth over the projection horizon. Nevertheless, in 2019 private consumption will likely stand above the level recorded before the international financial crisis.

After virtually stabilising in 2016, gross fixed capital formation (GFCF) is expected to grow by 8.8% in 2017 and slightly above 5% in the two following years. Corporate GFCF should grow above 6% over the projection horizon, reaching in 2019 a share of GDP close to that recorded before the international financial crisis.

Positive developments are projected for the labour market. After a 1.6% increase in 2016, employment is projected to grow by 2.4% in 2017 and 1.3% in 2018 and 2019. The unemployment rate is also likely to fall over the horizon, to reach 7% in 2019.

Developments in economic activity and employment should, however, continue to translate into a very modest recovery of labour productivity, which may be partly accounted for by the consecutive falls in investment recorded between 2009 and 2013.

Projections also point to a relative stabilisation of inflation over the projection horizon. Following a 0.6% increase in 2016, consumer prices should grow by 1.6% in 2017, 1.4% in 2018 and 1.5% in 2019.

The projected economic growth pattern is consistent with a sustained recovery of the Portuguese economy. However, important constraints to long-term sustainable growth remain, in particular the strong indebtedness of economic agents, the low level of productive capital per employee, unfavourable demographic developments and a high level of long-term unemployment.

It is necessary that resources continue to be mobilised towards more productive enterprises that are more exposed to international competition, by increasing incentives to innovation, factor mobility and investment in physical and human capital, in a foreseeable institutional and tax framework. Simultaneously, it is important that a sustained reduction in public indebtedness is achieved, which requires the maintenance of the fiscal consolidation effort. All these structural progresses are even more pressing due to the temporary nature of non-standard monetary policy measures in the euro area and the persisting downward risks to economic activity in the medium term.

 

Table 1 • Projections of Banco de Portugal for 2017-2019 | Annual rate of change, in percentage

Sources: Statistics Portugal and Banco de Portugal.

Notes: (p) - projected, (p.p.) - percentage points. For each aggregate, this table shows the projection corresponding to the most likely value, conditional on the set of assumptions considered. (a) The demand aggregates net of imports are obtained by subtracting an estimate of the imports needed to meet each component. For more information, see the Box entitled ‘The role of domestic demand and exports in economic activity developments in Portugal’, in the June 2014 issue of the Economic Bulletin. (b) Total employment, in number of persons according to the national accounts concept.

 

Special issue: Saving and investment dynamics of Portuguese enterprises

The June issue of the Economic Bulletin includes a special issue – “Saving and investment dynamics of Portuguese enterprises” – and five boxes:

  • Box 1 | Projection assumptions;
  • Box 2 | An analysis of developments in the stock of consumer durable goods in Portugal;
  • Box 3 | Degree of openness of the Portuguese economy: recent developments and outlook;
  • Box 4 | Medium-term fiscal outlook;
  • Box 5 | Fiscal rules in the preventive arm of the Stability and Growth Pact.

The Bulletin also includes two sets of series on the Portuguese economy:

  • Quarterly series for the Portuguese economy: 1977-2016;
  • Annual series on household wealth: 1980-2016.