Press release of the Banco de Portugal on the October 2023 issue of the Economic Bulletin
The Portuguese economy grows by 2.1% in 2023. Following the dynamics at the beginning of the year, activity stagnated in the second and third quarters and growth is expected to remain low up to the end of the year. The economic slowdown reflects weaker momentum in major trading partners, the effects of inflation, and monetary policy tightening. For 2024 and 2025, growth is projected to reach 1.5% and 2.1%. The Portuguese economy will continue to grow on the back of investment and exports, converging with the euro area.
Inflation has decreased in recent months. The downward trend will continue, with the harmonised index of consumer prices (HICP) growing by 5.4% in 2023, 3.6% in 2024 and 2.1% in 2025, consistently with the European Central Bank’s (ECB) price stability objective.
Private consumption will increase less than economic growth. This benefits from gains in real disposable income as a result of price moderation and rising employment and wages, but is limited by rising interest rates. In addition, the saving rate is expected to rise gradually to 7.4% in 2025, above the pre-pandemic average.
Investment decelerates this year, growing by 1.5%, against a background of more expensive financing and slowing global demand. Projections for 2024-25 point to rates of change of 5%, reflecting the acceleration in global demand and the implementation of European funds.
Export growth is in line with external demand. Services exports are expected to grow less as the post-pandemic tourism rebound dissipates.
The current and capital account is expected to show surpluses of around 3% of GDP in 2023-25, reflecting the increase in EU transfers and the return to surpluses in the goods and services account.
The labour market will reflect the slowdown in the economy with lower employment gains than in the recent past. The unemployment rate should follow a slightly upward path, to stand at 6.9% in 2025.
Downside risks to developments in activity stem from a more pronounced slowdown in China and in international trade, a more adverse impact than that contained in projections for current financial conditions, and a further tightening of monetary policy. In terms of inflation, the risks of new shocks to commodity prices or of more persistent domestic pressures are counterbalanced by the materialisation of downside risks to economic activity.