The projections for 2022 to 2024 reflect a continued recovery of the Portuguese economy in the aftermath of the pandemic, in an external environment worsened by the unwarranted Russian invasion of Ukraine. In 2022 the economy is projected to grow by 6.3%, reflecting a strong carry-over effect associated with growth in the course of 2021, the dynamics of the first quarter of the year, but also a sharp deceleration in the remainder of the year. In 2023 and 2024 economic activity is expected to grow by 2.6% and 2%.

The deteriorating international environment constrains developments in economic activity. The Portuguese economy is suffering direct and indirect impacts from the invasion of Ukraine, resulting in increased uncertainty, higher inflation rates and sharper disruptions in global production chains.

The deteriorating external environment has entailed downward revisions of the quarter-on-quarter rates of change in GDP throughout 2022. The dynamic effects of these revisions will lead to lower annual growth in 2023 than previously projected.

Inflation is projected to increase to 5.9% in 2022, declining to 2.7% and 2.0% in the two subsequent years. This reflects developments in external price pressures. Over the projection horizon, these will dissipate, being partly offset by an increase in domestic pressures.

Private consumption is projected to increase by 5.2% in 2022, with current savings declining, decelerating in 2023-24 to developments more in line with real disposable income, which will fall by 0.4% in 2022 and grow by 1.5% on average over the two subsequent years.

Investment will continue to grow by 6% on average in 2022-24, close to that observed in 2021, largely reflecting inflows of European funds.

Exports will grow by 13.4% in 2022, gradually decelerating to close to the pre-pandemic pace in 2024. This is determined by a recovery in services exports, with tourism projected to return to pre-pandemic levels in mid-2022.

Employment growth will decline over the projection horizon. The unemployment rate will decline to 5.6% in 2022 and 5.4% in the following years. Real wages per employee in the private sector will fall by 1% in 2022, reflecting the rise in inflation, increasing by 2% on average in 2023-24, roughly in line with productivity.

Underlying the current projection are downside risks for activity and upside risks for inflation, particularly for 2022. A possible worsening of the impact of the invasion of Ukraine is the main reason behind such uncertainty and risks.

The continued increase in labour force qualifications is essential against a background of unfavourable demographics and technological transformation geared towards digitalisation. An effective implementation of the investments and reforms underpinning the Recovery and Resilience Plan will allow for further long-term growth gains.