LISBON: The Bank of Portugal (BdP) has revised down its forecasts for the country’s economic growth, projecting an increase in gross domestic product this year of 1.3 percent and suggesting that even by 2018, GDP will not have recovered its level of before the 2008 financial crisis. According to the institution’s Economic Bulletin for June, the BdP trimmed 0.2 of a point off its previous GDP forecast for this year, released in March, and said that it expected growth to accelerate to just 1.6 percent in 2017, rather than 1.7 percent. The rate is then to slow slightly to 1.5 percent in 2018 (against the 1.6 percent previously forecast).
These latest forecasts are more pessimistic than those of Portugal’s Socialist government, which in April issued a set of forecasts that projected 1.8 percent GDP growth this year and next, accelerating to 1.9 percent in 2018 and 2.0 percent by 2020. In its bulletin the BdP describes the economy as showing a “moderate recovery” this year, with growth “slightly lower than that projected for the euro area” as a whole, while in 2018, the level of GDP should be “close to but still below that observed before the international financial crisis of 2008”.
The projection through to 2018, it said, “is compatible with the continued reduction in the degree of leverage of the private sector, a condition [that is] indispensable to assure a pattern of sustainable growth in the Portuguese economy in the next few years. As to the various components of GDP, the institution expects private consumption to show “robust” growth this year – increasing 2.1 percent after 2.6 percent growth last year – but then “decelerate progressively” to 1.7 percent and then 1.3 percent in 2018, “in line with the development of real disposable income.”
While in 2017 “disposable income should continue to benefit form the measures to restore income” included in the state budget for this year, in 2018 it “should record a slowdown, in particular at the level of net remuneration, given the dissipation of the positive impact of the restoration of the salary cuts in the public sector and of the elimination of the surcharge on the tax on families’ income in the period 2015-2017”. All this suggests, according to the BdP, that between 2016 and 2018 the savings rate should increase to about 5 percent, as compared with 4.2 percent at the end of last year.
On investment, the BdP projects a “marginal” rise this year followed by “relatively robust growth in 2017 and 2018”, as the uncertain economy of recent quarters recedes into the distance. After expanding by just 0.1 percent this year, it said, gross fixed capital formation should thus swell by 4.3 percent next and 4.6 percent in 2018.
Export growth, on the other hand, is set to slow this year, as demand abroad falters, especially in major emerging markets such as Angola. Exports are thus set to grow 1.6 percent this year (after 5.2 percent last), accelerating to 4.7 percent next year and in 2018. Imports meanwhile should increase 2.8 percent this year (after 7.4 percent last), and then by 4.9 percent next year and 4.8 percent in 2018.
Inflation is expected to increase “progressively” over the period in question, from 0.5 percent last year to 0.7 percent this, and then to 1.4 percent next year and 1.5 percent in 2018. Those forecasts are higher than those the BdP put forward in March, reflecting, it said, the latest data on consumer prices and revised projections of crude oil prices.
