After exceptionally strong growth for Portugal, a slowdown is looming
The Portuguese economy, driven by strong export dynamics in the first quarter, is expected to face a significant slowdown due to a weakening global economic context and rising financing costs. Although a further decline in inflation is expected, the inflation slowdown is hampered by increased wage growth.
Strong first-quarter growth will not be sustained
In the first quarter, the Portuguese economy experienced 1.6% quarter-on-quarter growth, primarily driven by robust export dynamics. However, this positive momentum will be increasingly challenged by the tightening of monetary policy. As households and companies become more cautious about taking on new loans, consumption and investment will slow down. The coordinated tightening of global monetary policy will also contribute to weaker global growth prospects, which will dampen Portuguese export dynamics –an essential driver of economic growth in the first quarter.
Despite numerous interest rate hikes, we maintain a positive growth scenario. For the second quarter, we still anticipate growth of 0.4% quarter-on-quarter, which is expected to decrease further to 0.2% in both the third and fourth quarters of this year. Positive factors such as favourable labour market developments, increased inflows of European funds, government measures to support income, and a thriving tourism sector partially mitigate the impact of higher interest rates. Additionally, consumer confidence has risen to its highest level since the start of the war in Ukraine, boosted by rising wages which have already risen more than 7% in certain sectors.
Cautious recovery in consumer confidence
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