Press Release of Banco de Portugal on the October 2017 issue of the Economic Bulletin
Today Banco de Portugal publishes the October 2017 issue of the Economic Bulletin. The Bulletin analyses Portuguese economic developments in the first half of 2017 and updates macroeconomic projections for the current year.
Projections for the Portuguese economy 2017
Banco de Portugal’s projections point to a recovery of the Portuguese economy in 2017, generally confirming the projections published in the June issue of the Economic Bulletin.
Gross domestic product (GDP) is expected to grow by 2.5% in 2017, after a 1.5% increase in 2016, with an intra-annual deceleration profile. GDP growth in 2017 is estimated to exceed growth observed in the euro area economy by 0.3 percentage points, interrupting the real divergence trend recorded since 2000.
According to the projections, the Portuguese economic recovery in 2017 is expected to be supported by 7.1% growth in exports of goods and services (4.1% in 2016), reflecting new market share gains, and by an 8.0% increase in gross fixed capital formation (1.6% in 2016), boosted by the public and housing components and by the maintenance of strong growth in corporate gross fixed capital formation (around 7%).
Within exports of goods and services, tourism exports recorded a strong performance, and in 2017 are likely to be 77% higher than the level recorded in 2008.
The Portuguese economy should maintain its net lending position, as measured by the current and capital account surplus, at 1.8% of GDP, i.e. close to the level observed in 2016.
According to the projections, private consumption is expected to grow by 2.1% in 2017, i.e. at a slower pace than projected for GDP and observed in 2016, reflecting a deceleration in the consumption of durable goods, namely motor vehicles.
Projections also point to improvements in the labour market, with a pronounced acceleration in employment (higher than the projected in the June issue of the Economic Bulletin), a reduction in the unemployment rate, and a slight increase in the labour force, in a context of weak growth of real wages and a decline in household indebtedness. The more marked employment growth compared to projected GDP growth is likely to result in a reduction in apparent labour productivity.
The inflation rate, as measured by the rate of change in the harmonised index of consumer prices (HICP), is projected to rise from 0.6% in 2016 to 1.6% in 2017.
The recovery of the Portuguese economy projected for 2017 occurs in a particularly favourable economic, financial and monetary environment. The intra-annual deceleration profile results from a normalisation movement towards the Portuguese economy’s sustainable growth pace.
The Portuguese economy in the first half of 2017
In the first half of 2017 the Portuguese economy grew at a clearly faster pace than the European average and that observed in the last decade. This dynamics was broadly based across all the sectors of activity and benefited from a favourable international environment. GDP rose by 2.9%, driven by the behaviour of exports and investment.
Exports of goods and services increased by 8.9%, due to the dynamics of most components and geographical destinations, and reflecting sharp market share gains, of approximately 4.6 percentage points. Tourism exports grew by 15.3%, the highest rate of the last two decades.
As regards domestic demand, the first half of the year was punctuated by the strong growth of gross fixed capital formation, at 10.1%. It was broadly based across the different components, including construction. Private consumption increased by 2.1%, amid improved consumer confidence and higher disposable income.
In the labour market the labour force rose by 0.9% year on year, after six successive years in decline. Employment grew by 3.3%, although remaining at historically low levels. The net flows of job creation continued to be geared towards the sectors with higher productivity, notably those more exposed to international competition. The unemployment rate continued to follow the downward trend observed since 2013, standing at 9.5%; however, the weight of long-term unemployment in total unemployment continued to be quite high (59.5%).
The inflation rate measured by the year-on-year rate of change in the HICP was 1.6%.
The current expansionary phase of the Portuguese economy is a unique opportunity to reinforce its resilience to internal and external shocks and to address the challenge of an increase in productivity in the medium to long-term. The favourable trend of investment and particularly of corporate investment is quite relevant for the Portuguese economy’s actual and potential growth, but still falls short of that observed before the international financial crisis. It is essential to reinforce efficiency in financial intermediation, promote further deleveraging of the private sector, reduce the level of public debt, and create additional incentives towards innovation, factor mobility, and investment in human and physical capital, while simultaneously ensuring that the institutional framework is predictable and conducive to macroeconomic stability.
Economic Bulletin special issue and boxes
The Economic Bulletin includes a special issue: “International trade: gains and challenges”.
In addition to the special issue, the Bulletin also includes the following boxes:
Box 1 | Normalisation of monetary policy in the US
Box 2 | Targeted longer-term refinancing operations: characterisation and impact on the bank credit market
Box 3 | Credit demand and supply: a characterisation based on consultations of the Central Credit Register
Box 4 | Developments in loans granted to non-financial corporations by resident credit institutions: extensive margin vs intensive margin
Box 5 | Recent developments in public debt and financing strategy
Box 6 | The evolution of GVA, employment and productivity in the ongoing recovery: sectoral contributions
Box 7 | Analysis of the investment survey: impediments to investment
Box 8 | Recent developments in non-resident tourism in Portugal
Box 9 | Recent developments in the market share of Portuguese exports of goods in the EU