During 2023, several events impacted the Portuguese and European economy, causing significant economic and social changes, such as increased inflation, interest rates and the war in the Middle East.
However, since the beginning of 2020, unexpected and disruptive events have occurred, such as the COVID-19 pandemic and the war in Ukraine.
This sequence of events caused drops in production, difficulties in obtaining and transporting raw materials, disruption in supply chains or price fluctuations, which led, in this period, to an increase in unemployment (at least temporary), social inequalities, inflation , frictions in the labor market, economic slowdown and consequent economic recession, despite government measures to support various sectors.
In this context of events, several economic and financial challenges emerge in Portugal and Europe for 2024, of which I highlight:
o inflation uncertainty: despite the inflation rate in the Eurozone tending to get closer to the target set by the European Central Bank (ECB) of 2%, there remains some uncertainty as to when this target will be achieved.
The Bank of Portugal (BdP) predicts an inflation rate of 2023% for Portugal and 5.3% for the Eurozone in 5.4, resulting from a significant drop in energy prices (in 2022 it registered 8.1% and 8.4%, respectively).
For 2024, the forecast is 2.9% for Portugal and 2.7% for the Euro Zone, although there is some uncertainty related to energy prices and the war in the Middle East, among other factors.
In the following two years, the value will be around 2%. To mitigate inflationary pressures, it is not expected that the ECB will drastically reduce the refinancing rate, currently at 4.5%, but gradually.
o impact of changes in interest rates: as the majority of credits to individuals and companies in Portugal are granted at a variable rate, the value of the index determines the value of the installment.
Euribor rates for different maturities saw significant increases in 2023, after a long period of 0% or negative rates, due to the increase in the ECB's refinancing rate throughout 2023.
Since most credits have their interest rate reviewed every 6 or 12 months, any drop in the ECB rate (and indexers) will only be reflected throughout 2024 and not at the time of the change, which will not bring about a immediate relief in the amount of installments.
It will therefore have an impact on private consumption and corporate investment next year.
o decrease in available liquidity: the year 2024 will be marked by a decrease in the liquidity available in financial markets.
With the withdrawal of the ECB's financial stimuli, which lasted several years with the aim of promoting economic growth, banks will have to look for alternative sources of financing, which will be scarcer and more expensive.
During 2024, 491 billion Euros of TLTRO loans (targeted longer-term refinancing operations) from the ECB to European banks, including Portuguese, will mature.
In this way, banks will have less available and more expensive liquidity, which will imply optimization and greater scrutiny in the granting of credit by banks, reflected in the obtaining of credit by customers.
o geopolitical changes and shocks: The war in Ukraine generated substantial impacts on European economies, particularly on the supply of raw materials, food products and energy markets.
With the recent conflict in the Middle East, and the possibility of expansion to other nearby countries, the risk of disruption in energy prices and supply emerges again, which could lead to an increase in energy prices and, consequently, in production and the general level of energy. prices.
A possible new inflationary trend is in the air and will certainly be closely monitored by the ECB in 2024, which, when it occurs, will not hesitate to promote a further increase in the interest rate.
o economic performance: the European economy recorded surprising negative growth in Gross Domestic Product (GDP) in the third quarter of 2023 from two of the largest economies, France and Germany. Eurostat forecasts weak GDP growth in 2023 in the Euro Zone, at 0.6%.
In 2024, the forecast is 0.8% and in the following two years 1.5%. For Portugal, the BdP predicts economic growth of 2.1% in 2023, 1.2% in 2024 and 2.2% and 2.0% in the following two years.
Portugal's weak growth, although higher than that of the Eurozone countries as a whole, is not immune to the effects of inflation, lower household disposable income and the low performance of the country's main economic partners, essentially reflecting the decline in Portuguese exports In the next years.
The year 2024 will be particularly challenging and demanding for Portugal and Europe. Our country will grow above Europe, but still relatively little.
The performance of economies will depend on several factors exogenous to the countries and will have a significant level of uncertainty, whether in inflation, interest rates, geopolitics or financial markets.
Author Hugo S. Gonçalves has a degree in Economics and a Masters in Tourism Economics and Regional Development from the Faculty of Economics of the University of Algarve.
Co-author of articles on economic impacts of tourism, published in scientific journals tourism management e Tourism Economics.
Effective member of the Order of Economists, of the Specialty College of Political Economy.
He has been working in banking for over a decade, in various areas, in recent years with a particular focus on liquidity risk.
Note: article published under the protocol between the Sul Informação and the Algarve Delegation of the Economist Order
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