Portugal Economic Forecast

Preliminary national accounts data revealed that quarter-on-quarter growth accelerated to 1.6% in Q1 from 0.3% in Q4, surprising markets on the upside. A rebound in the external sector was behind the improvement; tourist arrivals posted an all-time record for the first quarter. On the flip side, domestic demand contributed negatively to the reading. Shifting to Q2, upticks in business and consumer sentiment in April point to healthy activity; that said, growth is set to remain below Q1’s high. In other news, on 9 May, the IMF concluded its Article IV consultation in the country. The Fund advocated for non-expansionary fiscal policy and recommended measures to increase fiscal revenue. Meanwhile, on 19 May, Moody’s affirmed the country’s ‘Baa2’ rating and upgraded the outlook to positive, citing stronger growth prospects and improving debt and fiscal metrics.

Harmonized inflation declined to 6.9% in April from March’s 8.0%. Price pressures softened for food and non-alcoholic beverages, housing and utilities, and transportation. Our panelists project inflation to fall further in the coming months on higher interest rates and lower commodity prices relative to 2022.