PORTUGAL
Growth stagnates, imbalances persist
Activity decelerating in the course of 2008
Economic activity in Portugal decelerated rapidly in the course of 2008 after a gentle upswing in 2006- 2007, such that for 2008 as a whole, GDP is projected to grow by only ½%, down from almost 2% in 2007. Domestic demand has weakened mainly as the result of construction falling back into the red. Furthermore, exports growth has worsened rapidly while high demand for equipment goods has added to imports, leading to a negative contribution of net exports to GDP growth after the positive readings of 2006-2007.
Gloomy prospects for 2009 and 2010
GDP growth is expected to fall further and stagnate in 2009 and only slight rebound in 2010, lifted by the tide in the euro area, albeit with a lag. The economic prospects for the forecast period are clouded by the current financial crisis – marked inter alia by lower credit supply, unstable interest rates and falling asset prices – and weakening external demand. These shocks are expected to bite throughout the forecast period. They may be particularly hurting given the mismatch between aggregate spending and income observed for a number of years in the Portuguese economy, which has been reflected in the persistent and large external deficits and debt accumulation.
Labour market, costs and prices without improvements
After a decline in 2008, the unemployment rate is expected to rise in 2009 as activity loses pace.
For 2009, the government deficit is projected to rebound to over 2¾% of GDP. On the revenue side, the economic downturn is expected to take a heavy toll on tax proceeds.
