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The Portuguese Public Finance Council (CFP) publishes its Opinion on the Macroeconomic Forecasts underlying the 2016 Draft Budgetary Plan produced in line with the European rules and the Budgetary Framework Law (Law no. 151/2015 of 11 September) which states that the projections underlying the budgetary programming documents shall be based on the most likely macroeconomic scenario or on a more prudent scenario. The constraints surrounding the presentation of the 2016 Draft Budgetary Plan (DBP/2016) had a bearing on the Opinion the CFP is required to produce, leading to the need for shorter and more flexible deadlines than those laid down in the MoU signed by the Ministry of Finance (MF) and the CFP in February 2015.
According to the CFP’s Opinion the forecasts included in DBP/2016 are crucially dependent on assumptions the achievement of which is not guaranteed, especially as regards growth in external demand and price changes. Even in the short term, recent developments in major Portuguese exports markets call for prudence when assuming growth in external demand. However, the more important risks associated with the scenario relate to price changes and their immediate impact on economic competitiveness and accordingly on GDP growth and employment.
As a result of its assessment of the macroeconomic forecasts underlying DBP/2016, the Portuguese Public Finance Council concludes that:
1. The macroeconomic forecasts underlying the 2016 Draft Budgetary Plan present significant risks, highlighted in this Opinion, which deserve special consideration when monitoring the economic situation and the State Budget outturn in 2016.
2. The current international climate should lead to greater prudence in regard to the assumptions concerning growth in external demand. Risks stemming from forecasts which prove to be optimistic are especially important at a time of great uncertainty as to developments in the global economy and given the Portuguese economy’s high level of indebtedness.
3. Growth based on domestic demand, in particular private consumption, corresponds to a well-documented past trend. Whilst not statistically implausible in the short term, the forecasts relating to prices, investment and foreign trade in 2016 may be deemed far from prudent.
4. Therefore these factors should be thoroughly taken into account when preparing the 2016-2020 Stability Programme.
The conclusions reached in this Opinion reflect the nature of the scenario under review. The forecasts contained in the scenario, whilst not absolutely implausible in the short term, do not reduce and actually increase the uncertainty relating to their medium term consequences, in particular as regards price changes, investment and foreign trade’s contribution to GDP growth. Therefore, the CFP’s Opinion stresses the need for the 2016-2020 Stability Programme to fill in the remaining gaps relating to the sustainability of the projected changes.
Date of last update: 22/01/2016
