Inflation, GDP and deficit in Portugal: predictions from the European Commission

The European Commission (EC) has unveiled its autumn macroeconomic forecasts for 2022 and 202 and, in general, it did not bring good news for Portugal. The EC revised inflation in Portugal upwards to 8% in 2022, although this is lower than the average for the Eurozone (8.5%). Even so, economic growth in Portugal this year was also revised upwards to 6.6%. Forecasts for the gross domestic product (GDP) deficit remained at 1.9%. For 2023, although reductions in inflation and the deficit are expected, the forecast states that the Portuguese economy will only grow by 0.7%. This is a scenario projected for the whole of Europe, as a strong contraction of the European economy is forecast for next year, putting several countries into recession. Let's have a closer look at the details about inflation, GDP and deficit in Portugal, focusing on details and predictions from the European Commission

Inflation in Portugal should be 8% in 2022

The EC has revised upwards its forecast for the inflation rate in Portugal to 8% in 2022. This is a more pessimistic estimate than that of António Costa's own socialist government (7.4%). Remember that inflation in Portugal reached 10.1% in October of this year, according to the National Statistics Institute (INE) in the country.

At a time of severe energy crisis and in which energy prices are putting pressure on inflation, the EU executive has revised upwards its estimates for the Consumer Price Index (CPI) for the coming years, not only for Portugal, but also for Europe:

• Portugal: inflation set at 8% in 2022 and 5.8% in 2023;
• Eurozone: 8.5% this year and 6.1% next year;
• European Union (EU): 9,3% this year and 7% in 2023.

Only in 2024 does the EC admit that inflation may fall to more stable levels: in the Eurozone to 2.6% and in the EU to 3.0%, being closer to the objective of the European Central Bank (ECB) to achieve price stability, which is to reach an inflation rate of 2%. Until then, further hikes in key interest rates are expected by the regulator led by Christine Lagarde to contain the generalised increase in prices.

Pexels

European economic growth will contract in 2023

With regard to GDP growth in Portugal, the EU executive revised its estimate upwards to 6.6% in 2022. But it anticipates that in 2023 the Portuguese economy will only grow by 0.7%, well below its previous projections and below those of the government.

Brussels also revised upwards its growth prospects for this year in Europe, after a better than expected performance in the first half of the year, now projecting GDP to grow by 3.2% in the Eurozone and 3.3% in the EU - compared to forecasts of 2.6% and 2.7% respectively four months ago.

However, and pointing out that the climate of great uncertainty, the crisis in energy prices and the loss of purchasing power should 'throw' the EU, the Eurozone and most member states into recession in the last quarter of this year, a scenario that could continue into the first quarter of 2023, the EC now anticipates a strong contraction of the European economy next year. Brussels' forecasts for 2023 are not encouraging, as it anticipates GDP growth of only 0.3%, when in the summer it was confident that it would rise by 1.4% in the Eurozone and 1.5% in the EU, despite the war in Ukraine.

Pexels

Portuguese GDP deficit should reduce in 2023

The EC anticipated a deficit of 1.9% of Portugal's GDP this year, maintaining the previous estimate and again in line with the government's forecast. And also a slight upward revision for 2023, remaining at 1.1%.

These percentages compare with a forecast of a negative balance of public accounts in the Eurozone of 3.5% of GDP this year and 3.7% of GDP next year. And for the EU as a whole, of 3.4% of GDP in 2022 and 3.6% of GDP in 2023, according to the data published at the start of November.

For 2024, Brussels projects a deficit of 0.8% of GDP in Portugal, 3.3% of GDP in the Eurozone and 3.2% of GDP in the EU.

"Public finances [in Portugal] are expected to improve gradually over the forecast horizon, with the general government deficit being 1.9% of GDP in 2022, 1.1% in 2023 and 0.8% in 2024," Brussels notes.

As for public debt, the institution says it forecasts public debt of 115.9% of GDP in Portugal in 2022, 109.1% of GDP in 2023 and 105.3% of GDP in 2024.

The estimate is that public debt in the Eurozone will be 93.6% of GDP this year, 92.3% of GDP next year and 91.4% the year after, while for the EU as a whole the figures are 86%, 84.9% and 84.1%, respectively.