More optimistic OECD sees Portuguese economy growing 1,6% this year and inflation at 2,4%

The OECD predicts that the public debt ratio will fall from 99,1% in 2023 to 95,7% this year

The OECD is more optimistic about the economy and inflation rate in Portugal, forecasting GDP growth of 1,6% in 2024 and a slowdown in price increases to 2,4%, it was announced today.

According to economic forecasts from the Organization for Economic Cooperation and Development (OECD), the growth of the Portuguese economy will slow down from 2,3% in 2023 to 1,6% in 2024 (when previously forecast 1,2%), recovering to 2% in 2025.

The OECD forecast is one tenth higher than that recorded by the Ministry of Finance, in the 2024-2028 Stability Program, which in a scenario of invariant policies predicts growth of 1,5% this year, in line with what was projected in the Budget of the State for 2024 (OE2024).

Among the main national and international institutions, the Bank of Portugal is the most optimistic institution, expecting growth in the Gross Domestic Product (GDP) of 2%, the Public Finance Council 1,6%, the International Monetary Fund 1,7%, while the European Commission predicts growth of 1,2%.

The Paris-based organization cut its inflation rate projection to 2,4% this year and 2% in 2025, from 3,3% and 2,4%, respectively, previously projected, due to stable energy prices and the slowdown in job search.

“A restrictive labor market and falling inflation are supporting real wage growth and private consumption, and the implementation of the Recovery and Resilience Plan (PRR) will boost investment”, considers the OECD.

Thus, despite noting that modest global growth and high uncertainty are holding back exports and investment, he believes that this situation will “disappear as external demand” increases.

The OECD considers that fiscal policy in Portugal should become less restrictive in 2024, predicting that the budget surplus will decrease from 1,2% of Gross Domestic Product (GDP) in 2023 to 0,3% in 2024.

“The implementation of the PRR, the reduction in personal income tax and the increase in social benefits will support activity and compensate for the progressive elimination of support measures to mitigate the inflationary shock in 2024”, he states.

At the same time, it notes that the minimum wage increased by 7,9% in 2024 and expects a further increase of 4,3% in 2025, probably increasing family income.

However, “increasing labor costs could hold back low-wage employment and the large public investments planned”, while “permanent reductions in personal income tax could worsen inflationary pressures”, while interest rates will continue to weigh on the activity.

The OECD predicts that the public debt ratio will fall from 99,1% in 2023 to 95,7% this year and to 92,5% in 2025.