Perspectives

Renewed confidence

th  
19  
EcoPerspectives // 4 quarter 2019  
economic-research.bnpparibas.com  
Portugal  
Renewed confidence  
The economic slowdown has been very gradual so far, but it is expected to progressively spread during the second half of 2019 and  
in 2020. With unemployment at the lowest rate since 2002, households remain confident and have just renewed their confidence in  
Prime Minister Costa’s administration. After winning the legislative elections of 6 October with more than 36% of the vote, the  
Socialist party is preparing to form a new government with the support of the other left-wing parties.  
Slowdown underway  
1- Growth and inflation  
The economic slowdown in the eurozone continues to progress. The  
Portuguese economy has no chance of escaping this widespread  
movement and is caught up in the same uncertainties (spread of  
global trade tensions, Brexit, oil pricing trends…) that are currently  
creating downside risks for economic growth in the quarters ahead.  
Faced with this tough environment, Portuguese growth has proven  
to be very resilient so far, and we have barely had to revise our  
estimates. After two buoyant years, annual GDP growth did not slip  
back below 2% until year-end 2018. At 1.8% y/y, it has been  
resilient throughout H1 2019, with strong domestic demand, and  
investment spending in particular, offsetting a good bit of the  
negative effects of the slowdown in foreign trade. The slowdown is  
nonetheless expected to spread very gradually in H2 2019 and in  
GDP Growth (%)  
Inflation (%)  
3
.5  
Forecast  
Forecast  
2.4  
2
.0  
1
.9  
1
.4  
1.6  
1.2  
0
.9  
0
.6  
0.5  
1
6
17  
18  
19  
20  
16  
17  
18  
19  
20  
Source: National Accounts, BNP Paribas  
2
020, driven notably by the easing of job creations and private  
participating in the minority government, they will nonetheless  
support its policies in the Assembly.  
consumption growth. At this point, we expect GDP growth to end up  
around 1.8% this year before slowing to 1.3% in 2020. That would  
bring next year’s growth more or less in line with current estimates  
of Portugal’s long-term growth potential, and for the fourth  
consecutive year, Portuguese growth would surpass the eurozone  
average (estimated at 0.7% in 2020).  
If this scenario is confirmed, we can assume that Portugal will  
maintain a prudent fiscal policy in the years ahead, even though the  
spreading economic slowdown is bound to put more pressure on the  
government. For the moment, in any case, fiscal consolidation  
continues. The fiscal deficit was trimmed to 0.5% of GDP in 2018  
and should narrow further in 2019 (0.2% of GDP). Public finances  
will benefit not only from the support of economic growth, but also  
from the current fiscal discipline and from the ongoing effects of the  
very sharp drop in sovereign spreads in 2017. Under the current  
environment (further decreases in rates and spreads in H1,  
resumption of the ECB’s net securities purchases as of November  
Particularly job-rich growth in 2017 and 2018 helped lower the  
unemployment rate to 6.5% in early 2019, the lowest level since  
2
or less levelled off due to a slowdown in job creations (+0.7% y/y in  
Q2 2019, compared to +2.7% y/y in the year-earlier period), before  
resuming a downward trend in July and August. For the moment,  
this easing of employment growth has not really strained household  
confidence, and household spending continues to outpace GDP  
growth. At 4.5% of gross disposable income in Q2, the household  
savings rate is among the lowest in the eurozone.  
002. In the first half of the year, the unemployment rate has more  
2019), the expected reduction in debt servicing charges, estimated  
at ½ point of GDP over the next two years, could be surpassed.  
1
Moreover, the banking system’s gradual recovery reduces the risks  
looming over public finances. Based on current trends, the IMF  
recently estimated that the country could reach a fiscal equilibrium  
in 2020, and the public debt ratio could drop below the threshold of  
Political continuity  
Under this positive economic environment, the outcome of the 6  
October legislative elections was no big surprise. Credited with  
successfully pursuing a social policy in recent years without  
disrupting the country’s economic recovery, the incumbent party  
came out on top. The Socialist party won above 36% of the vote,  
and its leader, Antonio Costa, will be reappointed to head the  
government for a second mandate.  
100% of GDP by 2024.  
As in the previous legislation, he hopes to renew the past  
agreement with the other, more radical parties of the left: without  
1
The banking sector’s non-performing loan ratio dropped back below 9% in  
Q1 2019, which is still poor, but much closer than in the past to the levels of the  
eurozone’s other poor performers (with the exception of Greece and Cyprus).  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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