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Press release of Banco de Portugal on the March 2019 issue of the Economic Bulletin

Today, Banco de Portugal publishes the March 2019 issue of the Economic Bulletin, which updates projections for the Portuguese economy for the period 2019-21.


Projections for the Portuguese economy in 2019-21

The Portuguese economy is expected to continue to grow by 2021, although at a slightly slower pace than in the past few years. After a 2.1% increase in 2018, gross domestic product (GDP) is expected to grow by 1.7% in 2019 and 2020, and by 1.6% in 2021, drawing closer to potential growth. Projections for GDP growth in 2019 are 0.1 percentage point below those released in the December 2018 issue of the Economic Bulletin, while projections for 2020 and 2021 have remained unchanged.

Projected growth for economic activity in Portugal outpaces that projected by the European Central Bank for the euro area, which indicates slight progress in the Portuguese economy’s convergence towards average income levels in the euro area.

The Portuguese economy should continue to benefit from a favourable economic and financial environment, including an average growth in external demand of 3.4% and the maintenance of favourable financing conditions for economic agents.

Activity growth over the projection horizon is expected to be supported by the contributions from domestic demand and, to a lesser extent, exports.

Press release of Banco de Portugal on the March 2019 issue of the Economic Bulletin

Turning to domestic demand, private consumption is expected to grow further, on average, by 2.1% each year, thereby exceeding the projected pace of activity growth and mirroring the increase in households’ real disposable income. After increasing by 4.4% in 2018, gross fixed capital formation (GFCF) is expected to rise by 6.8% in 2019, 5.8% in 2020 and 5.2% in 2021, mostly reflecting a contribution from the business component.

Exports are expected to grow at a pace close to that observed in 2018. Indeed, they are projected to increase by 3.8% in 2019, 3.7% in 2020 and 3.6% in 2020, in line with growth in external demand for Portuguese goods and services, with small market share gains, chiefly related to tourism.

By 2021, the Portuguese economy is expected to maintain a net lending position towards the rest of the world, with a current and capital account surplus of 0.6% of GDP in 2019 and 2020, and 0.9% of GDP in 2021. Underlying these developments is a gradual deterioration in the goods and services account, with imports dynamics expected to exceed exports, and an improvement in the income and capital account.

The labour market is projected to continue to develop favourably. Total employment is expected to grow over the projection horizon, although at a gradually slower pace, against the backdrop of a maturing business cycle and increasing labour supply constraints. Having increased by 2.3% in 2018, employment is expected to grow by 1.5% in 2019, 0.9% in 2020 and 0.4% in 2021. The unemployment rate should continue to decrease over the coming years, from 7% in 2018 to 5.2% in 2021. Output per worker is also projected to increase over the projection horizon.

Inflation, measured by the rate of change in the harmonised index of consumer prices (HICP), is expected to decrease from 1.2% in 2018 to 0.8% in 2019, only to increase over the next two years. The price increase is expected to stand below that projected for the euro area.

Projected growth in the Portuguese economy for the period 2019-21 is below that seen over the past few years, similarly to the euro area. A factor contributing to this is the deceleration in international trade, and there are risks that this trend may deepen further. 

On the other hand, specific constraints (demographic, technological and institutional) still affect Portuguese economic growth in the medium to long term, in addition to the high indebtedness of economic agents. Therefore, it is important to put in place conditions to foster an increase in productivity, through a better allocation of resources, the improvement of the functioning of product and labour markets, and investment in human capital and innovation.


Special issue: “Natural interest rate: from the concept to the challenges to the monetary policy”

The Economic Bulletin includes a Special issue, on the natural interest rate. The assertion that the natural interest rate in major advanced economies is and may remain at a historically low levels poses significant challenges to the conduct of monetary policy, which are discussed in more detail in this issue of the Economic Bulletin

The Economic Bulletin also includes the following four boxes that contextualise the projections for the Portuguese economy:

  • Box 1 | Sensitivity analysis of the projections to adverse external demand shocks
  • Box 2 | Impact of EU funds in the current and capital account: Portugal 2020 in perspective
  • Box 3 | An assessment of projections for 2018
  • Box 4 | Updating the import content of overall demand for the Portuguese economy