Last update (15/02/2024)
Portugal’s economy picked up in the last quarter of 2023 amid a slight recovery of economic sentiment and solid employment growth. According to the flash estimate, GDP rose by 0.8% (q-o-q) in 2023-Q4 after shrinking by 0.2% in the previous quarter. In full-year terms, economic growth slowed from 6.8% in 2022 to 2.3% in 2023, broadly as expected in autumn. The slowdown was initially triggered by private consumption and investment, reflecting the impact of higher interest rates. In the second half of the year, both consumption and investment rebounded while the contribution of net exports to growth turned negative on the back of weaker growth in foreign tourism and a drop in exports of goods.
In light of weak demand by main trading partners, economic growth is projected to remain subdued at the beginning of 2024 and to pick up only gradually afterwards. In full-year terms, GDP growth is forecast at 1.2% in 2024 and 1.8% in 2025, broadly unchanged compared to the Autumn Forecast. Private consumption is set to benefit from a steady increase in employment and wages, largely offsetting higher household expenses on mortgage interest payments, while the ongoing implementation of the Recovery and Resilience Plan continues to support investment. In the external sector, imports are expected to outpace exports.
HICP inflation slowed considerably in 2023, moving down from a peak of 10.2% (y-o-y) in 2022-Q4 to 2.4% (y-o-y) in 2023-Q4. Energy prices contributed substantially to disinflation, helped at a later stage by food and non-energy industrial goods. Services inflation remained elevated, mainly due to accommodation and catering services, but decelerated towards the end of the year after having reached a peak in the summer months.
HICP Inflation is projected to decline further over the forecast horizon, driven by declining energy prices and lower increases in food commodities. Service prices are also poised to contribute to disinflation but at a much slower pace, as the expected wage and employment growth is set to support consumer demand. In the first half of 2024, the disinflation process is expected to be temporarily muted by base effects in the energy sector and the re-establishment of the normal VAT rates for essential food products. All in all, annual HICP inflation is forecast to drop from 5.3% in 2023 to 2.3% in 2024 and 1.9% in 2025, which is lower than the Autumn Forecast for both years.