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The projections presented today are based on the information available at the time, considering the evolution observed of the Portuguese economy, the current international economic outlook and the policy measures that have already been adopted or are sufficiently specified. The baseline scenario is built on the no-policy change assumption. The CFP used its own models and the available macroeconomic projections, namely those published by international institutions, the Ministry of Finance (MF) and the Banco de Portugal (BdP).


Macroeconomic projections

The CFP’s projections point to a gradual slowdown in the growth of the Portuguese economy throughout the projection horizon. The reduction of the real GDP growth rate already observed in 2018 is expected to continue, with an annual change rate of 1.6% in 2019. For the medium term, it is likely that the pace of growth of the economic activity in Portugal stabilizes around of 1.5%.


The Portuguese economy appears to have completed the expansion phase, having reached the peak of the economic cycle in 2018. It is starting the downward phase of the cycle in an international environment with increased risks that can have high impacts, in a context still with internal weaknesses and with a limited fiscal space.


At the external level, the risks are related to the increased trade protectionism, the UK's exit from the EU without agreement, and the high levels of public and private indebtedness on a global scale. Domestically, the restoration of consumer confidence and the liquidity of banks in recent years has increased lending to households, particularly housing credit. High levels of public and private indebtedness are of greater importance given the greater vulnerability to which high debt stocks are subject when faced with a possible rise in interest rates.


Fiscal projections

The CFP’s fiscal projections, which only consider the policy measures already legislated or sufficiently specified, point to a fiscal deficit of 0.3% of GDP in 2019, that is 0.1 pp higher than the forecasted by the MF. The CFP's estimate is that the fiscal deficit reached 0.5% of GDP in 2018, with public debt set at 121.5% of GDP, according to the preliminary estimate of the Banco de Portugal.


In the following years, the CFP projection points to a gradual improvement in the balance until 2021, reaching a surplus in that year (0.4% of GDP), anchored in the revenue resulting from the prepaid margin return from the European Financial Stability Fund's (EFSF) in 2021, which represents 0.4% of GDP projected for that year.


In the years of 2022-2023, the budget balance is expected to deteriorate, with a deficit of about 0.1% of GDP projected to be the same as for 2020.


Excluding the effect of temporary and non-recurrent measures, there would be no improvement in the balance over the time horizon of the projection which would stabilize at a deficit equivalent to 0.1% of GDP. The current projection exercise maintains surpluses in the primary balance over the horizon, albeit with a less favourable trajectory than the exercise presented in September 2018.


The CFP projects a downward trend in the public debt ratio, which should decline from 121.5% of GDP at the end of 2018 to 104.1% of GDP in 2023. Between the end of 2018 and 2023, the ratio is projected to decline by 17.4 pp of GDP, compared with a 7.5 pp decline in the last five years.


The risks on the budgetary scenario presented are essentially due to four factors:

  • the deterioration of the world economy, with effects on the growth of the Portuguese economy and consequent negative impacts on revenue and expenditure;
  • the impact of new support to the financial sector;
  • the implementation of budgetary pressures on stricter components of public expenditure (in particular social assistance and staff expenditure); and
  • the ability to maintain control of growth in expenditure on intermediate consumption.

Date of last update: 14/03/2019

Economic and fiscal outlook . Report nº 2/2019 . 14 March 2019