Portugal’s growth is accelerating in the third quarter with consumption but the future is not bright

In its second reading of GDP, the National Statistics Institute (INE) confirmed its flash estimate published a month ago, including an annualized expansion of 4.9%, compared to 7.4% in the second quarter.

The National Institute of Statistics said that the contribution of domestic demand to GDP on a quarterly basis “turned positive” 0.4 percentage points from minus 0.5 points in the previous quarter, while net external demand was zero from 0.6 points in the second quarter.

Private consumption rose 1.1% between July and September – versus 0.7% in the previous three months – thanks to spending on durable goods.

But exports rose just 1.2% in the third quarter, compared to 2.9% in the previous quarter, despite services exports increasing 2.8% – which includes the recovery of the key tourism sector from low levels. Pre-pandemic – vs. 0.8% in the second quarter.

Investment fell 1.7%, down from the 2.7% drop recorded between April and June, while the construction sector continued to contract.

“The numbers confirm that the economy will slow down, although it is not yet showing significantly due to private consumption, which remains strong despite the rise in inflation,” said Felipe Garcia, an economist with consultancy firm Informação de Mercados Financeros.

He added, “There are already worrying signs of the economy’s behavior in 2023, such as a slowdown in exports and a continued decline in investment, particularly a contraction in the construction sector.”

Portuguese consumer prices rose 9.9% year-on-year in November, slowing slightly from the 10.1% rise recorded in October, which was the fastest in 30 years.

Finance Minister Fernando Medina told Reuters two weeks ago that the government expects economic growth to reach at least 6.7% this year, exceeding its previous forecast of 6.5%.

However, Medina witnessed a sharp slowdown in growth, reaching 1.3% in 2023.