OECD had predicted a 1.6% growth for Portugal in May
The Organisation for Economic Co-operation and Development (OECD) has revised upwards its forecast for the growth of the Portuguese economy this year to 1.7%, while leaving unchanged its 2% growth projection for 2025, according to a report released on Wednesday.
Despite this upward revision, which compares with an estimate for the current year of 1.6% released in May, the OECD’s new forecast is still below the government’s projection for growth in gross domestic product this year, which is 1.8%, and 2.1%.for next year.
While disposable income and private consumption are on the rise, particularly as a result of tax cuts, tourism revenues have moderated and labour shortages persist, the OECD states in its latest Economic Outlook.
In the report, the OECD notes that “European (Union) funds and a more flexible monetary policy are boosting investment,” while arguing that the “projected recovery of activity in European trading partners will support exports” from Portugal.
“Strong wage growth and high employment rates will boost consumption, especially as inflation and debt servicing costs fall,” says the organisation, acknowledging that although tax cuts, increased social transfers and higher public wages should support household incomes, “they will also slow the decline in inflation.”
The OECD’s forecast for inflation in Portugal, measured by the harmonised index, is for a rate of 2.7% in 2024 and 2.2% in 2025.
“Overall consumer price inflation will moderate to 2.1% by 2026, as energy and food prices stabilise and pressures on services prices slowly diminish,” the organisation predicts.
Among the risks to these projections is a further decline in the household savings rate and stronger than expected wage developments, which “would strengthen consumption but also fuel inflation.”
At the same time, the implementation of the Recovery and Resilience Plan (RRP) “may materialise more slowly than expected, implying lower growth and lower inflation.”
The OECD also predicts that “persistent budget surpluses and high nominal growth will reduce public debt to 89.3% of GDP in 2026.”
As for policy recommendations for Portugal, the organisation says that “sustained productivity growth, higher employment and more efficient public spending are needed to cope with the rapid ageing of the population and significant investment needs, particularly in human capital.”
The OECD also advises strengthening environmental and property taxation, “while protecting vulnerable groups,” as well as reducing barriers to entry into services and improving childcare services for low-income families, which “could further increase women’s participation in the labour force and alleviate labour shortages.”
Source: LUSA
