Portugal Government Consumption (ann. var. %)

GDP growth steady in Q4

Activity growth was unchanged versus Q3 at 0.3% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, up from the preliminary estimate of 0.2%.

Private consumption fell 0.5% in Q4, which contrasted the third quarter’s 1.1% expansion, as inflation reached its highest level since 1991 during the quarter. Public spending accelerated to a 0.7% increase in Q4 (Q3: +0.2% s.a. qoq). Meanwhile, fixed investment bounced back, growing 2.2% in Q4, contrasting the 0.5% contraction in the prior quarter. Rebounds in construction and in the production of transportation equipment were behind the improvement.

On the external front, exports of goods and services increased 0.2% on a seasonally adjusted quarterly basis in the fourth quarter, which was below the third quarter’s 0.8% expansion. In addition, imports of goods and services registered flat growth in Q4 (Q3: +1.6% s.a. qoq). The deceleration in imports growth caused net external demand to flatter the reading.

On an annual basis, economic growth waned markedly to 3.2% in Q4 from the previous quarter’s 4.8% growth. Q4’s reading marked the worst reading since Q1 2021.

Turning to Q1 2023, activity is set to remain muted. Sustained pessimism among consumers in January and February—amid stubbornly high inflation and tighter financing conditions—hints at weak domestic activity. Moreover, the execution of investment related to EU recovery funds slowed in January. That said, growth should gradually pick up during the year as price pressures ease and EU neighbors’ economies strengthen.

Analysts at the EIU commented on the outlook:

“Economic activity will be constrained by high inflation, weighing on consumer purchasing power; tighter monetary policy, with interest rates rising sharply in the euro area; and a subdued external environment, with US and global growth slowing considerably. Conversely, generous fiscal support, EU-funded investment and a pick-up in external demand from China towards the end of 2023 should provide some support to overall economic activity.”