Portugal: Economic growth shoots up in Q4
Portugal becomes the Euro area’s top performer: According to a preliminary reading, the economy expanded 1.5% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter. The reading outpaced both Q3’s 0.3% increase and was the strongest among Euro area countries. Moreover, Q4 marked the sharpest increase since Q1 2022.
Meanwhile, year-on-year economic growth accelerated to 2.7% from 2.0% in the third quarter and was the strongest since Q1 2023. As a result, the economy rose 1.9% overall in 2024 (2023: +2.3% yoy), with the release indicating that a negative contribution from the external sector outweighed healthier domestic demand.
Deteriorating imports boost growth: According to the statistical office, Portugal’s economy continued to operate at two different speeds in quarterly terms in Q4: The external sector contributed positively to the headline result owing to a decline in imports, while domestic demand detracted from growth due to a negative contribution from changes in inventories.
A complete breakdown will be released on 28 February.
Economy to expand around trend in the coming quarters: After a stellar performance in Q4, the economy should be going into a lower gear in Q1 2025, according to our Consensus. Still, Q1’s sequential expansion should be broadly aligned with 2024’s average. GDP growth should then stabilize through Q4. Our panel forecasts the economy to expand at a slightly faster pace in 2025 as a whole than in 2024. Renewed political uncertainty and slower-than-expected absorption of EU funds are downside risks, while a stronger-than-expected Spanish economy is an upside risk.
Panelist insight: EIU analysts commented:
“Real GDP growth in Portugal is set to continue to be well above the euro zone average […]. The main drivers of economic activity in 2025 will be a strong tourism sector as well as increasing FDI inflows that seek to capture EU disbursments from the Recovery and Resiliance Facility (RRF). Furthermore, strong growth in Spain will also help Portugal’s trade balance and offset the expected drop in external demand.”