"Nominal house price growth is accelerating, and signs of house price overvaluation have emerged," says the EC.
The European Commission today highlighted “concerns” about Portugal related to rising house prices, with “signs of overvaluation” and public and private debt levels, pointing to the “persistence of macroeconomic imbalances”.
In a report published today regarding the Alert Mechanism, the exercise for screening risks of potential macroeconomic imbalances, the EU executive notes that “in Portugal, concerns related to the debt ratios of households and non-financial corporations, government and external debt to GDP [Gross Domestic Product] remain, although debt ratios have resumed their downward path after the Covid-19 crisis.”
“Nominal house price growth is accelerating, and signs of house price overvaluation have emerged,” it adds.
In this year’s Alert Mechanism Report, Brussels then concludes that in-depth reviews are needed in Portugal and 16 other member states, and in the Portuguese case, macroeconomic “imbalances” persist, some detected earlier.
When the EU economy is moving from a recovery from the Covid-19 pandemic to a sharp slowdown in growth subject to inflationary pressures, Brussels immediately highlighted that in Portugal, “concerns related to the evolution of house prices are increasing”.
“Nominal house price growth has accelerated from 8.8% to 9.4% in 2021. Nominal year-on-year house price growth accelerated to 13.2% in the second quarter of 2022. House prices were estimated to be 23% overvalued in 2021. More than two-thirds of mortgages have interest rates fixed for only up to one year,” the institution lists.
According to the European Commission, other “significant concerns” are related to public debt, which warned that “fiscal sustainability risks are high in the medium term and medium to long term”.
Regarding private indebtedness, “vulnerabilities related to the debt-to-GDP ratio of non-financial companies remain, although it is on a downward path”, indicates the community executive.
Even so, “there are risk factors associated with the macroeconomic environment”, it stresses.
As for household debt to GDP, “it remains above both prudential and fundamental benchmarks, although it decreased in 2021 and continued to fall in the first half of 2022”.
Also on a downward trajectory are “concerns related to the banking sector”, although “some weaknesses remain”, according to Brussels, which highlights that “the ratio of non-performing loans [so-called non-performing loans] has continued its downward trajectory, but remains above the EU average”.
In this annual exercise, with the Alert Mechanism Report, Brussels identifies Member States for which in-depth analyses are needed to assess whether they are affected by imbalances that require policy action.
Also today, the European Commission urged the Portuguese government to “take the necessary measures” to ensure that the State Budget for 2023 is “consistent” with fiscal prudence, warning of “risks” in the deficit and debt by family support.
The EU executive published the European Semester cycle of economic policy coordination for 2023 based on the autumn economic forecasts released in mid-November.