#OECD #revises #estimate #Portuguese #economic #growth
“Cautious optimism has begun to take over the global economy, despite modest growth and the lingering shadow of geopolitical risks. Inflation is falling faster than expected, labor markets remain strong, with unemployment reaching historic lows or close to them”, begins by mentioning the Economic Outlook report.
However, “the impacts of more restrictive monetary conditions are being felt, especially in the housing and credit markets”.
The economic recovery “is unfolding differently between regions”, with the mixed macroeconomic scenario expected to persist, with inflation and interest rates decreasing at different rates and with different needs for budgetary consolidation. This Thursday, the OECD warns of the risk of conflicts in the Middle East and Ukraine damaging energy and financial markets, hindering growth and increasing inflation again.
According to the OECD, this year GDP, globally, is expected to rise 3.1 percent – a scenario between optimism and caution, in relation to the economies of various countries. As for the Portuguese economy, the organization is revising it upwards: GDP is expected to increase by 1.6 percent, above the 1.2 that appeared in the organization’s last projection.
“Real GDP growth is expected to decline to 1.6 percent in 2024 and recover to 2.0 percent in 2025”, it is disclosed. “A restrictive labor market and falling inflation are supporting real wage growth and private consumption, and the implementation of the Recovery and Resilience Plan (PRR) will boost investment.”
Resilient growth
Portuguese budgetary policy “should be eased in 2024”, with the budget balance expected to decrease from 1.2 percent of GDP in 2023 to 0.3 percent in 2024. The forecast also points out that for 2025, Portuguese GDP rises to 2 percent. With a softer fiscal policy, stable energy prices and falling inflation, purchasing power can increase and contribute to reducing public debt.
“With stable energy prices and slowing job demand, inflation will continue to moderate to 2.4 percent in 2024 and 2.0 percent in 2025.”
For the Portuguese economy, the OECD states that the “implementation of the PRR, the reduction in personal income tax and the increase in social benefits will support activity and compensate for the progressive elimination of support measures to mitigate the inflationary shock in 2024.”
According to the report, the effects of high inflation, more restrictive financial measures and “weak growth in Portugal’s main trading partners slowed economic activity in 2023”. Despite this, GDP has recovered in recent quarters and employment in the country “remains at a historically high level”, supported by “growth in the tourism sector and the increase in PRR expenses”.
“Consumer price inflation eased to 2.6 percent in the year to March, and real wage growth and household confidence recovered steadily.”
Although energy and food prices remain high, energy prices have declined and “food price inflation has slowed to 0.3 percent”.
“However, the previous rise in interest rates has drastically increased mortgage payments and business costs, and a contraction in lending to households and businesses is weighing on consumption and investment,” says the OECD.
The organization also leaves a warning to Portugal: despite a constant decline, “public debt in relation to GDP remains high”. Therefore, “strong growth, more efficient spending and a reinforced fiscal framework are needed to face the growing fiscal pressures arising from the aging population and long-term investment needs”.
