Brussels foresees a 1.4% deficit in 2018, surpassing the Government’s goal

  • ECO News
  • 9 November 2017

On the presentation of the Autumn Economic Forecast, the EC foresees the Portuguese economy will grow at the highest rate of the decade and that the unemployment rate will stand below Euro Area's.

The European Commission foresees a 1.4% deficit for Portugal in 2018, above the 1% goal set by the Government. The number is included in the Autumn 2017 Economic Forecast published this Thursday. As for GDP, it should increase 2.6% this year and 2.1% in 2018, in line with the Executive’s projections.

On the report, Brussels anticipates a global deficit above the Government’s goal for next year and an unchanged structural balance of 1.8% of GDP (Mário Centeno, Portuguese Finance minister, stated there would be a 1.3% decrease). In other words, the Commission foresees the global deficit will fall less than what was promised and that even such decline, will not be obtained through structural measures, but merely from the evolution of the economic conjuncture.

“As the impact of discretionary measures and savings in interest expenditure in 2018 is expected to be broadly neutral, the structural balance is projected to remain broadly stable”, is stated in the report.

In the press conference presenting the report, Pierre Moscovici explained that the differences between the fiscal adjustment projected for 2018 results mainly from a “more conservative assessment” of the impact of the measures, as well as of a “higher assessment of the evolution of expense in some areas”. Nonetheless, the commissioner stated the EC was “exchanging ideas with the Portuguese authorities”, adding that they expect their differences to be solved.

Source: Autumn 2017 Economic Forecast for Portugal.

As for economic growth, Portugal will have higher increase in GDP than in 2017 (2.6%, in comparison to 2.2% in the Euro Area). But that will be a one-off phenomenon, according to projections, since the Portuguese economy will grow the same as the Euro Area in 2018: 2.1%. As for 2019, Portugal should grow 1.8%, below the 1.9% foreseen for the Euro Area.

Portugal will have less unemployment than the Euro Area

As for the yearly unemployment rate, Brussels foresees that Portugal will stand at 8.3% in 2018, below the 8.5% foreseen for the Euro Area. Eurostat’s data show that 2005 was the last year Portuguese unemployment stood below the Euro Area rates.

Evolution of unemployment rate in Portugal and in the Euro Area

Source: Eurostat and European Commission’s forecast. Data for 2017, 2018 and 2019 are projections.

With these forecasts, the European Commission shows it is more optimistic about the evolution of the labor market than the Government. In the 2018 State Budget draft, disclosed in October, the Government expected the unemployment rate to stand at 8.6% in 2018 and 8.5% in 2019 – both forecasts stand above the 8.3% and 7.6% Brussels’ expects, respectively.

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