OECD is more optimistic about Portugal. Sees economy growing 1.6% this year – Conjuntura

The Organization for Economic Cooperation and Development (OECD) is more optimistic about Portugal. In the updated projections this Thursday, the expectation for the expansion of the gross domestic product (GDP) and the budget surplus was revised upwards, as well as downwards for the debt.

The OECD predicts that Portuguese GDP growth slow down in 2024 to 1.6% – which compares with the previous projection of 1.2% and with 1.5% expected by the Government – and recovers to 2% in 2025. Last year, the Portuguese economy grew 2.3%.

“A tight 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“, the OECD report begins by explaining. Although “modest global growth and high uncertainty” are holding back exports and investment, the organization anticipates that “this situation will disappear with the strengthening of external demand.” With stability energy prices and the slowdown in labor demand, inflation will continue to moderate to 2.4% in 2024 and 2.0% in 2025.

PRR will compensate for withdrawal of support

“Fiscal policy will become less restrictive. The application of the PRR, the IRS reductions and the increase in social benefits will support the activity and compensate for the progressive elimination of the measures of support to mitigate the inflationary shock in 2024″, anticipates the OECD, which expects the execution of community funds to accelerate from 0.6% of GDP in 2023 to 1.3% in 2024 and 1.8% in 2025. After a budget surplus of 1.2% last year, the projection for this year is 0.3% (which compares with an estimate of 0.2% in November), as anticipated by the Ministry of Finance.

As for public debt, the OECD revised its projections downwards: it expects it to fall from 99.1% last year to 95.7% the next and 92.5% the year after that. November estimates were 101.5% and 98.4%, respectively. Even though it is more optimistic, the organization leaves a warning.

“Despite a constant decrease, public debt in relation to GDP continues to be high. Strong growth, more efficient spending and a strengthened fiscal framework are needed to face the growing budgetary pressures arising from the aging of the population and long-term investment needs”, he warns.