Portugal: Economy picks up slightly in Q1
May 31, 2019
Detailed national accounts released on 31 May confirmed that the economy grew 0.5% in quarter-on-quarter, seasonally-adjusted terms in Q1 2019 (Q4 2018: +0.4% quarter-on-quarter). Meanwhile, the economy grew 1.8% in annual terms, after expanding 1.7% year-on-year in the previous quarter.
A marked acceleration in domestic demand (Q1: +2.1% qoq; Q4 2018: +0.8% qoq) powered the quarterly expansion, outweighing weakness in the external sector. Particularly, surging fixed investment led the charge (Q1: +8.3% qoq; Q4: +0.2% qoq), propelled by markedly higher construction investment and a more rapid rise in the purchase of machinery. On the other hand, private consumption growth slowed considerably, from 1.3% to 0.3%; growing pessimism over general economic conditions and personal finances caused consumer confidence to slide in the period, weighing on household spending in turn. The government also tightened its belt, with public spending growth decelerating to 0.4% from 0.7% in the previous quarter, on attempts to strengthen the fiscal account.
Meanwhile, export growth sped up to 2.9% in the quarter (Q4: +1.6% qoq), although remained relatively tepid amid a cooling global economy. Nevertheless, the external sector dragged more severely on growth, deducting 1.7 points from the headline print following the 0.4 percentage-point subtraction in Q4, as imports continued to outpace exports. Import growth climbed to 6.0% in Q1 from 2.3% in the previous quarter, reflecting a significant rise in the purchase of capital goods from overseas.
Despite marginally improving in Q1, economic growth is expected to weaken this year on a slowdown in exports and cooling tourism activity amid increasingly challenging global conditions. While EU structural funds will aid the rollout of several delayed investment projects, domestic demand is also set to lose momentum, with downbeat sentiment among households and businesses capping consumption spending and investment.
Author: Nihad Ahmed, Economist