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Portugal GDP Q4 2023

Portugal: Economy rebounds on stronger external demand in Q4

GDP rebounded at the tail end of 2023, expanding 0.8% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter from the 0.2% contraction seen in Q3. Q4’s reading marked the best result since Q1. On an annual basis, economic growth to 2.2% in Q4 from the previous period’s 1.9% increase. Despite Q4’s uptick, the economy lost considerable momentum overall in 2023, expanding 2.3% (2022: 6.8%) in part on a high base of comparison. Weaker external demand and a tight monetary policy backdrop drove the moderation of growth.

The quarterly upturn was broad-based and chiefly reflected rebounding external demand.

Domestically, over two-year-low inflation provided support to purchasing power: Private consumption bounced back, growing 0.9% seasonally adjusted quarter-on-quarter in Q4 (Q3: -0.5% s.a. qoq). Moreover, fixed investment growth improved to a one-year high of 2.9% in Q4 from the 1.1% expansion logged in the prior quarter. Meanwhile, public spending growth softened to 0.7% in Q4 (Q3: +0.9% s.a. qoq). On the external front, exports of goods and services rebounded to 3.6% in seasonally adjusted quarter-on-quarter terms in the fourth quarter (Q3: -1.5% s.a. qoq), the highest since Q2 2022. Meanwhile, imports of goods and services growth picked up to 4.2% in Q4 (Q3: +0.4% s.a. qoq).

Our Consensus is for the economy to post a shallow seasonally adjusted quarter-on-quarter expansion in Q1 2024 and for growth to slow significantly in 2024 as a whole from 2023. Still-tight monetary policy and diminished post-pandemic household savings will restrain private spending growth. This, paired with weaker external demand, will prevent the economy from hitting the government’s target of 1.5%.

Fitch Solutions analysts highlighted downside risks:

“Risks to our forecast for 2.0% real GDP growth in 2024 largely tilt to the downside. The 0.8% q-o-q Q4 2023 growth figure suggests the economy is entering 2024 with some strong momentum; however, it is worth remembering that bumper growth of 1.5% q-o-q in Q1 2023 was followed by a lacklustre 0.1% in Q2 and then a contraction of 0.2% in 2023.”

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