OECD improves forecasts for Portugal, anticipates ‘zero deficit’ in 2020

The OECD has improved the forecast for the Portuguese deficit to 0.1% this year and ‘zero deficit’ next year, in line with the government, reducing the estimate for economic growth in 2020 by one-tenth to 1.8%.

For next year, the OECD anticipated a zero-budget balance (0%), an improvement of two-tenths compared to the previous estimate (deficit of 0.2%).

The entity aligns its projections with those of the Portuguese government, which, in the draft budget plan sent to Brussels on 15 October, it anticipated a deficit of 0.1% of Gross Domestic Product (GDP) this year and a zero deficit in 2020.

“Fiscal policy is expected to remain prudent,” the OECD said, adding that the public debt-to-GDP ratio should continue to decline.

The organisation predicts that the public debt will fall to 119.3% of GDP this year (the same forecast of the government) and 117.1% next year.

“The increase in the efficiency of public spending will support the creation of budgetary buffers to absorb unforeseen shocks and the budgetary impact of the ageing population,” the document said.

The OECD pointed out the significant progress made by banks in strengthening their balance sheets and reducing non-performing loans, supporting the increase in the granting of credit and consumption.

The OECD expects that the Portuguese economy will grow 1.9% this year, one-tenth more than it anticipated in May, forecasting an expansion of 1.8% for 2020, one-tenth less than in the previous forecast.

The government expects GDP growth of 1.9% this year and 2% next year.

“Consumption growth will slow down due to slower wage growth. The growth of exports will be sustained by gains in competitiveness, despite the challenging external conditions,” the OECD said, adding that the absorption of structural funds from the European Union will sustain investment.

For the unemployment rate, the OECD anticipated that it will stand at 6.5% this year, compared to the 6.3% estimated in May and forecast by the government, then falling to 6.4% in 2020, also above the 5.9% anticipated by the executive.

The OECD warned that the negative risks to the Portuguese economy result from further deterioration of growth prospects in the European Union and that the continued uncertainty arising from the Brexit may affect trade and tourism, adding that the banking sector is still vulnerable to financial shocks due to high levels of non-performing loans.

The positive potential stems from improved labour market performance and the competitiveness of Portuguese exports as a result of ongoing structural reforms.