Portugal: Economic growth loses steam in the third quarter
Detailed national accounts data, released by the Statistical Institute on 30 November, confirmed that the economy decelerated in the third quarter due to a contraction in exports amid a wider cooling in the Eurozone. Matching the flash estimate, GDP grew 0.3% over the previous quarter in Q3, following a 0.6% quarter-on-quarter expansion in Q2.
A breakdown by expenditure shows domestic demand accelerated in the third quarter, growing 1.1% after a 0.6% expansion in the second quarter. Private consumption growth picked up in Q3, rising to 0.7% from 0.1% in Q2, as contained inflationary pressures and strong credit growth boosted purchasing power and encouraged greater private spending. Despite slightly more upbeat business confidence in the quarter, fixed investment growth weakened to 0.9% in Q3, down from 1.7% in Q2, on fears of a continued slowdown in private sector activity in the Eurozone. Meanwhile, public consumption came in flat from the previous quarter in Q3, following a 0.3% rise in Q2, as the government moved towards strengthening fiscal metrics and bring down the public debt burden.
The external sector increasingly dragged on growth in the third quarter compared to Q2, however, as exports contracted amid a weaker global backdrop. Exports fell 3.6% in Q3, contrasting a 2.3% rise in Q2; meanwhile, imports also dropped although less severely than exports (Q3: -1.9% qoq; Q2: +2.3% qoq). Consequently, the external sector deducted 0.8 percentage points from GDP growth in Q3, after a nil contribution to growth in the second quarter.
Economic growth also lost ground in annual terms, edging down to 2.1% from the second-quarter’s 2.4%, owing to a downturn in domestic demand. While the external sector continued to drag on growth in Q3, it was slightly less marked than the previous quarter. Looking ahead to next year, the economy is expected to lose some steam. However, it should continue to grow at a healthy pace, supported by solid domestic demand, greater inflows of foreign investment, a flourishing tourism sector and the ongoing housing boom.