Portugal: Growth picks up in Q3 amid a wider recovery in the Eurozone
November 30, 2017
Detailed figures released by the National Statistics Institute (INE) on 30 November confirmed that growth hit 0.5% quarter-on-quarter in Q3 (Q2: +0.3% quarter-on-quarter), amid a wave of strong growth results emerging out of the Eurozone. On a year-on-year basis, however, growth moderated to 2.5% in Q3, down from 3.0% in Q2. Despite the deceleration in annual terms, the economy remains on a healthy expansion path, buoyed by a booming tourism industry and robust industrial production.
On the domestic side, demand expanded at a faster pace of 0.7% over the previous quarter in Q3 (Q2: +0.5% qoq). The upturn was driven by a 1.4% rebound in private consumption (Q2: -0.5% qoq), which offset a 1.0% decline in total investment (Q2: +5.3 qoq). Quarter-on-quarter growth in fixed investment swung into negative territory, plunging 1.3% in Q3. It contrasted a 1.9% jump in Q2, likely caused by a deterioration in construction activity.
Exports picked up, led by a surge in overseas sales of goods. Total exports rose 0.8% quarter-on-quarter in Q3, contrasting the 0.3% contraction in Q2. Imports also accelerated, outpacing growth in exports (Q3: +1.3% qoq; Q2: +0.2% qoq). The external sector’s negative net contribution to growth remained at minus 0.4 percentage points in Q3.
The economy is expected to continue expanding at a solid pace next year thanks to healthy private consumption, aided by the ongoing recovery in the labor market that should boost consumers’ purchasing power. Moreover, strong economic growth in Eurozone trading partners should yield a robust expansion in exports. A high proportion of bad debts, low capital buffers, and weak profitability in the country’s banking sector pose downside risks to economic prospects, however. On 27 November, Portugal’s parliament approved the 2018 budget, which seeks to markedly reduce the deficit to 1.1% of GDP in 2018, and reduce the tax burden on low-to-medium income households and pensioners.
Author: Nihad Ahmed, Economist