The country's economy may experience a mild recession in 2023, reflecting a challenging first half followed by a more favourable second half in a year impacted by external development.
Portugal’s economy may experience a mild recession in 2023, reflecting a challenging first half followed by a more favourable second half in a year impacted by external developments, according to economists consulted by Lusa.
This is not the central scenario, but it is admitted as possible by all economists consulted by Lusa, who warn about the impact of international developments, namely the evolution of the war and a recession in the country’s main trading partners.
“It is unlikely that our country will be able to escape a recession that is expected in most of our main trading partners. The most favourable side is that this recession may be shallow and relatively short – perhaps only two quarters,” said Pedro Braz Teixeira, director of the research office of the Forum for Competitiveness.
The economist said that “Uncertainty is high, and we can always have very negative surprises, whether from war or pandemic”. For this reason, the institution maintains its forecast for the Portuguese Gross Domestic Product (GDP) to evolve between -2% and 1% in 2023.
In the same vein, Pedro Brinca, professor at the Nova School of Business (SBE), acknowledged that given the international context, particularly the eurozone, a recession is possible, although this is not the central scenario, not least because Portugal grew above the eurozone average in 2022.
“It is important to remember that we are talking about rather anaemic growth in which a few tenths could make the difference between a recession or not, between growing above or below the average of the eurozone countries,” he pointed out.
For the economist, “the uncertainty is so great that the only certainty that exists for now is that the slowdown [in economic growth] will be substantial”.
A forecast shared by Pedro Bação, professor at the University of Coimbra, to whom “it seems likely that at least the first half of 2023 will be characterised by a reduction in the growth rate, with negative consequences in terms of the unemployment rate and, more generally, in terms of the population’s well-being”.
Even so, he believed that the second half of 2023 may already see a resumption of the growth rate and employment recovery.
In turn, for João Borges de Assunção, coordinator of the Católica-Lisbon Forecasting Lab, the test will be the last quarter of this year.
“The year 2022 is ending very weak. Our test is whether the Portuguese economy stays above the fourth quarter of 2019 and unemployment doesn’t rise too much. The economy has fluctuated a lot quarterly in the post-pandemic period, so there can be quarters with negative chain variations without this necessarily translating into a deterioration in employment,” he explains.
In the central scenario, the Católica-Lisbon Forecasting Lab forecasts a marginally positive annual variation in GDP, between a contraction of 1% or a growth of 2%, centred on 0.5%.
“Foreign trade may continue to contribute positively, but investment should be weak next year, reflecting the adverse effects of rising interest rates and inflation,” it justifies.
Pointing to the same conditioning factors for investment, Pedro Braz Teixeira believes that “what could help would be a public investment and the implementation of the Recovery and Resilience Plan (PRR),” two elements of which, he says, the government has not been able to get “even remotely close to its goals, so it is very difficult to believe it will be able to achieve them by 2023.
With regard to exports, the director of the Forum’s research office highlights the impact of the global slowdown, especially in Europe, and therefore believes that in 2023 there will be a “probable new loss of consumer purchasing power”, as well as a drop in employment, leading to “strong moderation in private consumption”.
It is in this framework that Pedro Brinca believes that “the Portuguese economy will go from a year in social crisis to a year in generalised crisis.
“With the end of a base effect that sustained growth in 2022, with the rise in interest rates and progressive deterioration in the economic conditions of families, and with the strong slowdown in external and internal demand, it will be a year that will surely not be missed,” he anticipates.
For Pedro Bação, “we may be on the threshold of a time of great transformation of the economy and daily life, and perhaps in 2023, the first signs of this will begin to appear”, with relatively significant investments directed towards science and energy, but also towards medicine and artificial intelligence.
Or, he considers, “the political-military situation in Europe and Asia” worsens and “the existential risk becomes oppressively dominant” since “the most likely seems to be to reach a stalemate in the war, which will maintain pressure on the energy market and encourage the continued adoption of measures to accelerate the energy transition”.
“In this scenario, the Portuguese economy may suffer such a slowdown, or even recession, in 2023, but essentially it will have to continue to adjust to a new reality in which the cost of living is clearly higher than it was a year ago,” he anticipates.