Portugal: Economy maintains stride in the second quarter
August 30, 2019
Detailed national accounts released on 30 August confirmed that the economy grew 0.5% in quarter-on-quarter, seasonally-adjusted terms in Q2 (Q1: +0.5% quarter-on-quarter). Meanwhile, in annual terms, GDP was up 1.8% in the second quarter, matching the print of the first quarter.
Domestic demand contracted for the first time since Q4 2015 (Q2: -0.9% qoq; Q1: +1.4% qoq). Fixed investment changed course significantly, diving 2.4% in Q2 amid a fall in business confidence, contrasting the first-quarter’s marked 8.4% rise. Private consumption also fell, although less markedly, as downbeat confidence among households continued to weigh on their spending (Q2: -0.3% qoq; Q1: +0.2% qoq). Moreover, government expenditure remained subdued on ongoing fiscal consolidation measures (Q2: +0.1% qoq; Q1: +0.1% qoq).
Conversely, net exports contributed positively to growth in Q2, following a drag in the previous quarter. Export growth fell from 3.2% in the first quarter to 0.7%, against a challenging trade backdrop. Meanwhile, imports contracted 2.1%, contrasting a 4.7% expansion in the previous quarter, reflecting the slump in domestic demand. Taken together, the external sector contributed 1.5 percentage points to the second-quarter print, contrasting the 0.9% percentage point deduction in the first quarter.
Despite a steady improvement in the first half of the year, the economy is seen losing stride this year, owing to a deterioration in net exports. Import growth is expected to rise on greater capital spending, reflected in an expected jump in fixed investment growth, with EU structural funds aiding the rollout of several delayed investment projects. On the flip side, however, weak sentiment among households will likely translate into reduced private consumption gains.