Portugal: Europe’s growth champion plagued by uncertainty
While first-quarter growth was among the highest in the eurozone, Portuguese people feel very concerned about the economic consequences of the war in Ukraine
Uncertainty caused by the war bites harder in Portugal
Thanks to strong domestic demand and a revival of tourism, GDP surpassed its pre-pandemic level in the first quarter of the year. However, the economy is suffering from high inflation, supply chain disruptions, and uncertainty related to the war in Ukraine. A special survey conducted by the European Commission between the middle of April and the middle of May reveals that Portuguese people are more concerned about the war than the European average and feel less prepared to deal with the consequences of the conflict. Although its direct links to Russia and Ukraine are limited, the barometer ranks Portugal as the second country in the European Union (after Bulgaria) to “most feel the economic consequences of the war in Ukraine” while many other countries said they “haven’t felt any yet”.
Hot tourism season underpinning economic growth
Portugal will experience a hot tourism season as flight bookings have already surpassed pre-pandemic levels according to data provider ForwardKeys, with Portugal the fourth most popular holiday destination in Europe. The recovery of tourism is a substantial factor in underpinning economic growth for this year, as the sector’s total contribution to GDP accounted for 17.1% of GDP in 2019. Exports are expected to grow by more than 13% this year, thanks to a strong recovery in services exports linked to tourism. Tourism is expected to remain buoyant over the next few years, growing at a much faster pace than the rest of the economy.
First-quarter momentum is losing ground
Household consumption was one of the major pillars of support at the start of the year, but this is expected to slow down due to war uncertainty and the drop in purchasing power, driven by high inflation. Nevertheless, the Portuguese economy is still projected to grow by 6.6% in 2022, thanks to a strong carry-over effect from 2021 and an accelerating economy in the first quarter of the year. However, the strong momentum of the first quarter is likely to deteriorate over the remainder of the year. In 2023 and 2024, real GDP is forecast to grow by 1% and 1.4%, respectively.
The Portuguese economy in a nutshell (% YOY)
"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).