Portugal: GDP records sharpest contraction since Q1 2021 in Q3
GDP contracted 0.2% on a seasonally adjusted quarter-on-quarter basis in Q3 from a 0.1% drop in the second quarter. Q3’s reading marked the worst result since Q1 2021. The external sector weighed on the economy, more than offsetting a positive contribution from domestic demand. On an annual basis, economic growth waned markedly to 1.9% in Q3, following the previous quarter’s 2.6% growth. Q3 marked the worst reading since Q1 2021.
On the external front, exports of goods and services contracted 2.3% in Q3, marking the worst reading since Q2 2021 (Q2: -1.2% s.a. qoq). A decrease in exports of both goods and services, including tourism, was behind the stronger contraction. Conversely, imports of goods and services rebounded, growing 0.5% in Q3 (Q2: -2.3% s.a. qoq). Overall, the external sector subtracted 1.3 percentage points from growth, swinging from a positive contribution of 0.5 percentage points in the previous quarter.
On the domestic front, private consumption growth rebounded amid softer inflation, growing by a seasonally adjusted 0.5% quarter-on-quarter in Q3 from a 0.5% decline in Q2. Public consumption, meanwhile, grew by 0.9% in Q3 (Q2: +0.4% s.a. qoq). Moreover, fixed investment bounced back, growing 0.6% in Q3, following the prior quarter’s 0.6% contraction.
The economy should grow at a weaker pace in 2024 than this year. Household spending is expected to expand more slowly amid depleted savings and the lagged effects of monetary policy tightening. However, a robust tourism sector should support activity. Delays in the allocation of EU funds pose a downside risk, as does political uncertainty.