Portugal: Starting 2024 on a weaker footing after tourism recovery falters
One of the big drivers of growth, a further recovery in the tourism sector, will fall away this year. Combined with modest consumption dynamics, we assume average Portuguese growth will slow down this year.
Portuguese economy made strong start in 2023, but growth quickly stalled
Portugal's economy started 2023 strongly but slowed down sharply afterwards. The country still benefited from a further recovery in the tourism sector in the first few months of the year, but this positive effect on growth gradually faded throughout the year as visitor numbers rose back to pre-Covid levels. A weakening of foreign demand caused by the economic slowdown in many other European countries also pulled negatively on the growth rate. The relative greater weight of the service sector in the economy, partly due to the importance of tourism, has allowed the Portuguese economy to grow faster than the eurozone average.
Weak consumption means we will not see a strong recovery
In the coming year, a recovery in real incomes through the combination of lower inflation and accelerating wage growth will support consumption, but several other factors will counter this positive effect. First, a weakening labour market. Although unemployment is still very low, business surveys show that hiring intentions among entrepreneurs are weakening. In addition, households will have to repay more on their loans due to rising interest rates, which will also dampen consumption. So, a combination of sub-par economic growth, a weakening labour market and geopolitical uncertainty is likely to encourage households to increase their savings rate again.
Measures to help to households will start to be withdrawn this year
Some government measures which were introduced to support households against high inflation, such as the application of zero VAT on a range of basic foodstuffs that benefited households last year, will be abolished in 2024. All these factors are likely to dampen the positive impact of a rise in real incomes on consumption, meaning that part will not be a strong growth driver this year.
In the second half of the year, growth is expected to rebound on the back of a gradual easing of monetary policy and a pick-up in external demand. Also, European funds will have a positive impact on the growth figures for this year. Overall, we expect the Portuguese economy to grow by 0.8% on average in 2024, which is above our euro area forecast but well below last year's 2.1% growth. In 2025, we expect growth to accelerate again to 2.2%.
Headline inflation could temporarily rebound, but it's nothing to be worried about
Inflation could rebound temporarily this year as favourable base effects due to lower energy prices last year will gradually fade away. In addition, the discontinuation of some support measures will also put upward pressure on the inflation rate. We assume an average inflation rate of 2.4% this year, which is expected to normalise further to 2.1% in 2025.
Portuguese economy in a nutshell
Download
Download article
18 January 2024
The Eurozone Quarterly: Caught between stagnation, transition and geopolitics This bundle contains {bundle_entries}{/bundle_entries} articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).