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Press release of Banco de Portugal on the June 2018 issue of the Economic Bulletin

Today, Banco de Portugal publishes the June 2018 issue of the Economic Bulletin, updating the projections for the Portuguese economy for the period 2018-20.


Projections for the Portuguese economy in 2018-20

In Portugal, economic activity is expected to continue to expand up to 2020, although at a gradually slower pace over the projection horizon. After increasing by 2.7% in 2017, gross domestic product (GDP) is estimated to grow by 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020, in line with Banco de Portugal’s March projections.

Over the next few years, economic activity in Portugal should continue to benefit from a favourable economic and financial environment, coming closer to the pace of potential growth. In 2018, GDP is expected to increase slightly above that estimated for the euro area as a whole, to reach the levels seen prior to the international financial crisis. In the next two years, growth should be similar to that projected for the euro area. GDP per capita in Portugal is also expected to increase over the projection horizon, while maintaining the very gradual process of real convergence to the euro area average.

The expansion in activity between 2018 and 2020 should hinge on the momentum behind exports and investment – revised downwards from the March projections – and the moderate growth in private consumption, which was revised slightly upwards.

After increasing by 7.8% in 2017, exports of goods and services should grow by 5.5% in 2018, 4.6% in 2019 and 4.3% in 2020, reflecting a deceleration in external demand for Portuguese goods and services and progressively lower market share gains. In 2020 the value of exports of goods and services is expected to stand 67% above its 2008 values. The tourism component is estimated to be more than twice its pre-crisis level in 2020.

With regard to gross fixed capital formation (GFCF), which rose by 9.1% in 2017, annual growth is estimated to reach 5.8%, 5.5% and 5.4% up to 2020. Corporate investment is expected to return to its pre-crisis levels at the end of 2019. Nevertheless, in 2020 total GFCF should still stand 10% below the level seen in 2008, reflecting a decrease in public investment and residential investment.

After increasing by 2.3% in 2017, private consumption is expected to grow over the next few years approximately in line with GDP developments: 2.2% in 2018, 1.9% in 2019 and 1.7% in 2020. These developments reflect the fading effects associated with the materialisation of expenses that had been postponed during the last recession and the deceleration in real disposable income.

Projections point to a slight reinforcement of the Portuguese economy’s lending position up to 2020, with the combined current and capital account balance standing at 1.8% of GDP over the three-year horizon (1.4% in 2017).

The labour market is expected to recover further. Total employment should grow by 2.6% in 2018, 1.2% in 2019 and 0.9% in 2020. Notwithstanding these developments, at the end of the projection horizon, employment is expected to remain below its pre-crisis levels. The unemployment rate should also decrease, to stand at 5.6% in 2020, similar to the levels projected in March and below the average in Portugal in the years prior to the crisis. Labour productivity is expected to grow moderately over the projection horizon, while remaining low compared with that seen in the other member countries of the Monetary Union.

The inflation rate in Portugal is projected to be relatively stable over the next few years, below the values established by the European Central Bank for the euro area. Consumer prices should grow by 1.4% in 2018, 1.5% in 2019 and 1.4% in 2020.

The currently favourable economic and financial environment should be used as an opportunity to correct structural constraints to long-term growth, which, moreover, help explain the slowdown in economic activity over the projection horizon. The rise in geopolitical tensions and increased political uncertainty at international level reinforce the importance and the urgency of multidimensional progress: in the deleveraging of the public and private sectors, the allocation of investment to the most productive sectors of the economy (thus facilitating the incorporation of new technology and increasing capital per worker), the upskilling of Portuguese workers and the reduction in long-term unemployment.

Projections for the Portuguese economy in 2018-20
Projections for the Portuguese economy in 2018-20

Special issue: “Consumer expenditure inequality for households in Portugal”

The June issue of the Economic Bulletin includes a special issue: “Consumer expenditure inequality for households in Portugal”. 

The Bulletin also includes five boxes:

  • Box 1 | Projection assumptions
  • Box 2 | Medium-term fiscal outlook
  • Box 3 | Recent developments in the market share of Portuguese exports
  • Box 4 | Inflation developments in Portugal and the euro area: contributions from the pro-cyclical and acyclic components
  • Box 5 | Macroeconomic impact of the rise in global protectionist tensions