Despite the growth indicated, this is a slowdown compared to the 2.3% recorded last year.
The Organization for Economic Cooperation and Development (OECD) has revised upwards the growth of the Portuguese economy for this year. According to the institution, the Gross Domestic Product (GDP) should grow to 1.6% in 2024 and 2% the following year.
However, it is important to note that this upward revision means a slowdown compared to the year’s growth, when the national economy grew 2.3%. Previous OECD projections showed growth of 1.2%, while the Government was slightly more optimistic: 1.5%.
The OECD maintains that employment levels and the slowdown in inflation will support increases in wages and private consumption, in addition to that the Recovery and Resilience Plan will reinforce investment. “A restrictive labor market and falling inflation are supporting real wage growth and private consumption, and the implementation of the Recovery and Resilience Plan (PRR) will boost investment”, points out the report.
Even so, the entity explains that “modest global growth and high uncertainty are holding back exports and investment, but this will disappear as external demand strengthens”. Everything indicates that inflation will continue to moderate over the next two years: 2.4% in 2024 and 2% in 2025.
“Activity will be supported by additional increases in public salaries and the indexation of pensions, new targeted social transfers, reduction of the IRS, as well as the extension of mortgage and rent subsidies, and new tax incentives to increase investment. Additionally, the minimum wage rose by 7.9% in 2024, and is expected to increase by a further 4.3% in 2025, predictably increasing family income”, he highlights.
Regarding the budget surplus, the OECD predicts a drop to 0.3% of GDP in 2024, from 1.2% last year. PRR funds should increase from 0.6% to 1.3% of GDP in 2024 and 1.8% in 2025. It will be these data that will then boost consumption and investment.
As for debt, the entity sees a strong reduction compared to GDP, although it considers that this should remain high next year. It is important to remember that Portugal recorded a debt below 100%, with Portugal leaving the most debtor countries in Europe. The OECD estimates that debt will fall to 95.7% in 2024 and 92.5% in 2025.
“Despite a decrease, public debt in relation to GDP remains high. Strong growth, more efficient spending and a strengthened budgetary framework are needed in order to face growing budgetary pressures arising from the aging population and long-term investment needs”, he warns.
In relation to the PRR, everything indicates that the execution of community funds will accelerate from 0.6% in 2023 to 1.3% in 2024 and 1.8% in the following year. For the OECD, budgetary policy will become less restrictive.
