Portugal Economic Outlook
The economy shrank 0.2% in quarter-on-quarter terms in Q3, swinging from Q2’s 0.1% uptick. External demand detracted from the final reading, while domestic demand was growth-supportive. The temporary closure of a large Volkswagen factory in early September likely weighed on activity. Our panel expects GDP to return to sequential growth in the current quarter. Inflation fell considerably in October, which should support households’ purchasing power and spending. That said, economic sentiment fell in the same month. In politics, Prime Minister António Costa resigned in early November amid a corruption inquiry that reached his inner circle. Subsequently, President Rebelo de Sousa called a snap election for 10 March. Privatization plans and expatriate tax reform have, therefore, been suspended and political uncertainty has increased.
Harmonized inflation fell to 3.2% in October from September’s 4.8%. The deceleration was driven by softer price pressures for food, housing and transportation. Inflation should average lower next year than in 2023, benefiting from a favorable base of comparison and the lagged effects of higher interest rates.