Portugal's growth will accelerate mildly in 2016
Growth slowed in the first quarter, as the drag from net exports more than offset accelerating private consumption
Source: Instituto Nacional de Estatistica Portugal, Bloomberg, Oxford Analytica
Outlook
Consumption is accelerating, but without returning to the pre-recession trend. Within investment, the acceleration in transportation is offset by a contraction in materials, products and equipment. Export growth is decelerating.
With the labour force shrinking, the unemployment rate has been declining since its peak of January 2013 at 17.3%. In March 2016, it stood at 12.1%.
In 2015, the budget deficit was 4.3% of GDP, including the impact from the last IMF repayment, the resolution of Banif bank and the cash buffer of the delay in the sale of Novo Banco. In the first quarter, the deficit worsened by 107.9 million euros (120.9 million dollars) year-on-year. Public debt was 129% of GDP at end-2015.
Impacts
- Growth will recover in 2016 at a moderate pace, supported by low interest rates, low energy prices and past euro depreciation.
- Inflation is likely to accelerate, as economic activity gains traction, supported by the fuel tax increase and base effects.
- Declining public debt will be key to reducing fiscal pressure, lowering the sovereign premium and creating room to ease the tax burden.
- Bond spreads are likely to narrow due to easing political uncertainty, the DBRS IG rating decision and improving economic outlook.