Banco de Portugal Economic Bulletin – Winter 2012: Outlook for the Portuguese Economy 2012-2014

21-1-2013 — /europawire.eu/ — Banco de Portugal Economic Bulletin – Winter 2012: Outlook for the Portuguese Economy 2012-2014

1. The outlook for the Portuguese economy in 2013 and 2014 continues to be marked by the process of adjustment of the structural macroeconomic imbalances, including the short-run impact of fiscal consolidation measures, as well as tight financing conditions against the background of an orderly and gradual deleveraging of the banking sector and the persistence of tensions associated with the sovereign debt crisis in the euro area.
2. The projections point to a contraction of GDP of 1.9 per cent in 2013 (-3.0 per cent in 2012, see Table). For 2014, the economic activity is projected to increase by 1.3 per cent, in a context in which no further fiscal consolidation measures were considered beyond those included in the 2013 State Budget. The balance of risks for the economic activity is on the downside, with particular focus in 2014, and results, in particular, from the fact that only the fiscal measures already adopted or announced and sufficiently detailed were taken on board.
3. In 2013, the implementation of the fiscal consolidation measures included in the 2013 State Budget will contribute to a significant drop in disposable income and in domestic demand. The contraction of economic activity is mitigated by relatively favorable exports developments in the context of a virtual stagnation in external demand (similar to that observed in 2012).
4. Economic growth projected for 2014 is based on a moderate recovery of domestic demand, supported by rising disposable income and an improving demand outlook. This evolution is accompanied by an increase in exports that mirrors the recovery of world economic activity.
5. The change in the composition of aggregate expenditure has resulted in a rapid adjustment of the net external borrowing requirements of the Portuguese economy. The current and capital account balance went from a deficit of 9.4 per cent of GDP in 2010 to a position close to balance in 2012. The current projection points towards a continued improvement in the balance of goods and services, for which surpluses of 3.1 and 4.1 per cent of GDP are anticipated in 2013 and 2014, respectively.
6. Inflation is expected to hover around 1 per cent over 2013-2014 (2.8 per cent in 2012). This deceleration of prices will start in early 2013, as the effects of the increase in indirect taxation and administered prices of goods recorded in early 2012 fade out. The balance of risks regarding inflation is on upside, in particular for 2014, especially if adopted consolidation measures with impact on consumer prices.
7. These projections imply a downward revision of GDP growth prospects for 2013 compared to the Fall 2012 Economic Bulletin. This reflects essentially the materialization of the risk, then identified, of a less favorable global economic growth. The materialization of this risk had a negative impact on the projected growth in exports and, hence, in economic activity.
8. The great challenge that Portugal is faced with is to promote economic development in a new institutional framework. The consistent implementation of reforms and the redefinition of the role of the public sector are key  to stimulate investment, innovation and technical progress, without which there is no economic development. The challenge of economic development involves the mobilization of agents to the need and the benefits of engaging in reforms that provide levels of well-being compatible with the maintenance of institutional consensus and social cohesion.

Authored articles:

As usual, this Bulletin includes four articles authored by economists of Banco de Portugal. The articles, which are the sole responsibility of the authors, are:

• “The evolution of public expenditure: Portugal in the euro area context”, by Jorge Correia da Cunha and Cláudia Braz
• “A perspective on income redistribution in Portugal and in the European Union”, by Nuno Alves
• “What accounts for Portuguese regional differences in students’ performance? Evidence from OECD PISA”, by Manuel Coutinho Pereira and Hugo Reis
• “The wage gap of immigrants in Portuguese labour market”, by Sónia Cabral and Cláudia Duarte