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% and suggesting that even in 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% in 2017, rather than 1.7%. The rate is then to slow slightly to 1.5% in 2018 (against the 1.6% 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% GDP growth this year and next, accelerating to 1.9% in 2018 and 2.0% 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% after 2.6% growth last year – but then “decelerate progressively” to 1.7% and then 1.3% 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%, as compared with 4.2% 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 uncertainty economy of recent quarters recedes into the distance. After expanding by just 0.1% this year, it said, gross fixed capital formation should thus swell by 4.3% next and 4.6% 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 growth 1.6% this year (after 5.2% last), accelerating to 4.7% next year and in 2018. Imports meanwhile should increase 2.8% this year (after 7.4% last), and then by 4.9% next year and 4.8% in 2018. Inflation is expected to increase “progressively” over the period in question, from 0.5% last year to 0.7% this, and then to 1.4% next year and 1.5% 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.