Bank of Portugal cuts 2019 GDP growth forecast to 1.7% as exports slow

The Bank of Portugal on Thursday lowered its projections for the country’s economic growth this year, saying that it sees gross domestic product swelling by 1.7%, while maintaining projections for 2020 and 2021, when growth is seen slowing to 1.6%.

In its March Economic Bulletin, released on Thursday, the central bank reduced its 2019 growth forecast by 0.1 of a percentage point from the 1.8% it had been projecting in December, citing a global slowdown and international trade tensions. It sees growth staying at 1.7% in 2020, before slowing to 1.6% in 2021 – the latter figure in line with previous projections.

The slight downward revision in 2019 GDP is, according to the bank, related to the greater dynamism of imports than exports, which will result in a “negative trade balance in goods and services from 2020”.

However, it anticipates a maintained “surplus on the current and capital balance, along the projection horizon, with an important contribution from European Union transfers in this period”.

The projection for inflation was also revised down by the bank, by 0.6 of a percentage point in 2019, to 0.8%, and by 0.3 of a point in each of 2020 and 2012, to 1.2% and 1.3% respectively.

The report foresees export growth of 3.8% in 2019, 3.7% in 2020 and 3.6% in 2021, thanks to stronger external demand directed to the Portuguese economy plus small gains in market share, mainly associated with tourism. However, it notes, growth “should slow down along the projection horizon” as it did last year.

Imports, meanwhile, are expected to swell 6.3% this year, 4.7% in 2020 and 4.1% in 2021.

As for employment, it is projected to continue to grow, albeit at a gradually slower pace, reflecting “the maturation of the economic cycle and the increase in restrictions on the level of labour supply”.

The jobless rate – which averaged 7% last year – should fall to 5.2% by 2021, according to the report.

In the report, the bank also notes continuing risks and constraints specific to Portugal in the medium and long term – demographic, technological and institutional – as well as the high levels of indebtedness of economic agents. Against that background, it argues, “it is essential to create conditions that promote increased productivity through better allocation of resources, the smooth functioning of product and labour markets and the commitment to human capital and innovation.”