The first quarter may be the best of the year 2017

  • ECO News
  • 5 April 2017

In 2016, growth accelerated in the second half of the year. But in 2017, the Fórum de Competitividade predicts the situation might be reversed: the first quarter may very well be the best of the year.

Contrary to 2016, when growth was weak but ended up accelerating as disposable income increased due to salaries and pensions, 2017 should grow between 1.7% and 2%. These are the expectations from Fórum da Competitividade (‘Forum for Competitiveness’, an institutions which aims to promote competitiveness in Portugal by means of the cooperation between companies, universities and other entities); the institution warns, however, that this quarter should be the best out of 2017.

If there are no external or internal shocks, the Fórum para a Competitividade predicts an homologous acceleration in GDP growth for the first quarter of 2017 to 2.1%, and a 0.4% increase in comparison to the last three months of 2016. However, the Forum highlights it is “very likely” that the upcoming months will witness a quarter-on-quarter deceleration, since the effects of the factors which sustained growth in the second semester of 2016 and in the beginning of 2017 will start loosing their strength — namely the increase in salaries and pensions, as well as tax reductions. The Forum considers the cut in the deficit to 2.1% GDP was a “clear success”, although they give warnings concerning the sustainability of the decrease, pointing out warnings given by European authorities.

In the Forum‘s accounts, to which ECO had access to, the 2016 budgetary deficit without the impact of extraordinary measures was 2.7%, a 0.4 percentage points improvement in comparison to the previous year. The Forum believes this improvement happened due to a “very significant reduction in public investment”, a 200 million euros’ saving in public debt interests and a 0.3 percentage points effect of GDP through appropriations.

The document argues the improvement is the budget balance is “far from what is officially presented” and giver warnings about the difficulty in improving the structural balance, which has not decreased. According to the Forum‘s estimates, “between 2016 and 2018, if forecasts remain the same, there should be a worsening of 0.5 percentage points” in this balance.

Therefore, the Forum considers it is likely that Portugal will be able to leave the Excessive Deficit Procedure, highlighting that the Stability Programme the Portuguese Government will hand in on April 19 will be determinant for the European Commission’s decision.