Organisation predicts 1.6% growth
The Organisation for Economic Co-operation and Development (OECD) has upgraded its forecasts for Portugal’s economy and inflation rate, projecting gross domestic product to grow 1.6% this year, while consumer prices are seen rising by 2.4%.
The Paris-based organisation’s latest forecasts are more buoyant than their last (where they saw growth slow from 2.3% in 2023 to 1.2% this year). They are also slightly higher (+0.1%) than the forecast put forwards by the Ministry of Finance in the 2024-2028 Stability Programme for submission to European Union institutions.
Among the main national and international organisations, Bank of Portugal has given the most optimistic outlook on growth, expecting GDP to swell by 2.0% this year.
The Public Finance Council has plumped for 1.6%; the International Monetary Fund for 1.7%, while the European Commission has played it safe with 1.2%.
On inflation, the OECD has cut its projection of the average inflation rate for this year to 2.4% (its last estimate predicted 3.3%) and for next year 2.0%, citing stable energy prices and the slowdown in labour demand.
“A tight labour market and falling inflation are supporting real wage growth and private consumption, and the implementation of the PRR (Plan for Resilience and Recovery) will boost investment,” says the OECD in its economic note on Portugal, released today as part of its global ‘OECD Economic Outlook‘ package.
Thus, despite stressing that modest global economic growth and high uncertainty are holding back Portugal’s exports and investment, it believes these problems will disappear as external demand increases.
The OECD sees Portugal’s fiscal policy as becoming less restrictive in 2024, forecasting that the budget surplus will shrink from 1.2% of GDP last year to 0.3% of GDP this.
“The implementation of the PRR, personal income tax cuts and increasing social benefits will support activity and compensate the phasing out of support measures to smooth the inflationary shock in 2024,” the note states.
At the same time, the organisation notes that Portugal’s statutory minimum monthly salary increased by 7.9% in 2024 and expects a further increase of 4.3% in 2025 – likely increasing overall household income.
However, it adds, “the rise in labour costs could hold back low-wage employment and foreseen large public investments and permanent personal income tax cuts could add to inflationary pressures,” while high interest rates will continue to weigh on economic activity.
The OECD also predicts that the ratio of public indebtedness to GDP will fall from 99.1% at the end of 2023 to 95.7% this year.
Source material: LUSA
