Macroeconomic Picture

Indicator 2015 - 2019 2020 2021 2022 2023 (F)
Source: Oxford Economics, March 2023  
GDP 2.6% -8.3% 5.5% 6.7% 0.9%
Private Consumption 2.5% -7.0% 4.7% 5.7% -0.2%
Investment 6.3% -2.2% 8.7% 2.7% 2.8%
Unemployment Rate 9.5% 7.1% 6.6% 6.0% 7.0%
Consumer Prices 0.8% 0.0% 1.3% 7.8% 5.9%

The Portuguese economy has grown solidly since 2014 and until Covid-19 emerged, in March 2020. Exports, supported by strong tourism activity, were a major driver, together with an increase in household consumption and investment, namely in the construction sector. The labour market was likewise performing very positively. After reaching an all-time high above 17% in early 2013, the unemployment rate decreased sharply, standing at 6.5% in 2019.

The Coronavirus pandemic severely impacted the global economy, and in Portugal, due to the high dependence on foreign tourism, the effects were more prejudicial. However, tourism and economy started recovering in 2021 and recorded an extraordinary performance in 2022.

Portugal enters 2023 having reached in 2022 the second highest economic growth at a European level, only behind Ireland and well above the Eurozone average (3.3%); to which must be added a low unemployment rate of 6%. Equally surprising was the reduction of public debt - from 125.5% to 115% -, reflecting the third biggest decrease in the European context.

There already seems to be a consensus that the Euro Zone will manage to escape recession in 2023, and once again forecasts indicate that Portugal will stand out in the top three countries with the highest GDP growth. Oxford Economics has forecasted a mid-contraction of GDP at the start of 2023, followed by a modest growth throughout the year.

In 2022, Portugal did not live in a bubble and was affected by many risks. But also in this context, it had a particularly positive performance. It was the 4th country where inflation grew the least, standing at 7.8% (vs. 8.4% in the Euro Zone average).

Still, high inflation (forecast at 5.9%) and the maintenance of the Euribor growth trajectory will be reflected in a drop in family incomes and a reduction in private consumption in 2023, with a direct impact on the housing market for sale and retail.

In the labour market, the unemployment rate recorded a downward trend, standing at 6% in 2022. A slight increase is forecasted in 2023.

In addition to inflationary pressures, other major concern at the moment is interest rates upsurge by ECB (+3.5% since July 2022 until March 2023). After almost 3 years below 1%, the 10-year bond yield exceed this benchmark in February 2022 and in September 2022 reached 3%. Since then, has been growing continuously achieving 3.6% at the end of March 2023.

key economic indicators

Source: Oxford Economics, March 2023