Portugal’s Economy

Is Portugal's economy improving?

On the projection horizon, the Portuguese economy should maintain a growth profile, in a context where Russia's military invasion of Ukraine leads to high uncertainty. According to the March 2022 Economic Bulletin of the Bank of Portugal, Gross Domestic Product (GDP) grows 4.9% in 2022 (4.9% in 2021) and converges in the following years to rates closer to the estimated long-term growth rate: 2.9% in 2023 and 2.0% in 2024. The increase in economic activity translates into an increase in employment and a reduction in the unemployment rate.

Inflation increases in 2022 to 4.0% and decreases to 1.6% in 2023 and 2024.The increase in inflation in 2022 is associated with the rise in the price of raw materials, energy and others, and the maintenance of restrictions in global supply chains. The recovery in demand for the services most affected by the pandemic is also contributing to the rise in inflation.

These effects dissipate over the horizon projection but are partially offset by increased pressures on wages and prices, in a context of more intensive use of resources in the Portuguese economy.

The Ukraine invasion by Russia in late February contributes to intensifying inflationary pressures and to limit economic dynamism in the euro zone as well as in Portugal. The conflict aggravated the raw energy material prices and various primary goods. The negative impact on activity also comes from the lack of confidence from families and entrepreneurs, from the turbulence in the financial markets, as well as the effects of sanctions imposed on Russia on trade and financial flows. In the forward-looking exercise, it is assumed that the conflict does not escalate, and the impact of these factors dissipates in the medium term.

Portugal Real Estate Market

 

The inflation rate in Portugal reached 5.3% in March 2022, a figure that was not in the Portuguese memory for almost three decades. This escalation will have repercussions on house prices in a medium term which have not stopped rising since troika left the country. Just last year, housing became 9.4% more expensive. In the construction sector, the inflation shadow has been particularly felt in energy and raw materials, alongside that, it must be added the difficulties in hiring labor. This context, which intensified with the Ukrainian war is reflected in the accentuated rise in construction prices; leading the industry to slow down activity, reducing supply in the medium term and contributing to a further rise in the prices of existing housing stock.

In addition, as observed in previous years, the high demand on high end and luxury products, should also maintain. Supply may remain below demand, due to several factors, such as delays in licensing in most national city councils and greater difficulty in obtaining construction credit.

Finally, it is important to emphasize that, according to several international publications, Lisbon remains as one of the world's cities with the best qualities to live in.

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