After analyzing the Portuguese budget overview, the European Commission is more pessimistic than the Ministry of Finance: it expects less growth, higher inflation (almost 6%) and more deficit than the government before 2023.
According to the autumn forecasts released Friday, November 11, Brussels estimates that the Portuguese economy will grow by 6.6% this year, but will grind to a halt next year, rising only 0.7%. In the proposed State Budget (OE) for 2023, which is still under discussion in parliament, Fernando Medina expects growth of 6.5% this year (although he has already admitted that it could be 6.7%). And while he admits a slowdown in 2023, it is significantly smaller than the one Brussels is now pointing to: Medina forecasts GDP to grow by 1.3% that year, while the Commission points to a drag of nearly double.
“After a significant recovery [em 2022]The Portuguese economy is expected to slow down significantly next year, hampered by weak foreign demand and high energy prices,” the Commission says in the report accompanying the forecast. The last quarter of 2022 and the first quarter of the next are weak in terms of economic growth Still, the Brussels estimate shows the Portuguese economy growing more than the eurozone and the European Union, not just this year, but the next.2023, the European Commission points to a near-stagnation, with the economy growing by just 0.3%, both in the 27 countries as well as in the single currency.
In addition, the Commission is also more pessimistic about inflation and places the price increase at a level that is still very high in 2023, and also close to the forecast for the euro area. Brussels expects the Harmonized Index of Consumer Prices (HICP) to reach 8% in Portugal for the whole of this year, more than the 7.4% forecast by the Portuguese government.
Inflation slows but remains high
The price increase should slow down, but less than expected by the government. In the OE 2023 proposal, the Treasury Secretary points to an increase of only 4% next year, but according to the Commission’s technicians’ accounts, prices rose by 5.8%, a significant difference of 1.8 percentage points from of the expected. Expected inflation for Portugal is slightly lower than expected for the eurozone (8.5% in 2022 and 6.1% in 2023).
After reaching 9.5% (year-on-year) in the third quarter of this year due to high energy prices, which were transferred to other goods and services, Brussels says there were also “country-specific factors” driving prices up: ” the extreme drought put pressure on inflation in Portugal, with unprocessed food prices rising 18.1% year-on-year, compared to 12.7% in the eurozone,” the fall forecast reads.
The European Commission expects inflation to fall to 2.3% in 2024, in line with the eurozone forecast, but still above the ECB’s target. This is emphasized by European officials, “assuming that energy prices and food commodities fall, while prices of services should remain high, at the rate of wage adjustment”.
By contrast, the European Commission expects a larger deficit for next year than the government expects, but with a smaller difference. For 2023, Fernando Medina estimates a deficit of 0.9% of GDP, the Commission expects it to be 0.2 percentage point higher, to 1.1%. For this year, Brussels and the Portuguese government coincide.
Brussels warns of pressure on public wages on bills
Asked about this difference at a press conference, the European Commissioner with the Economy portfolio, Paolo Gentiloni, explained that this is because Brussels estimates greater spending on social transfers and civil servant salaries than the government. European officials even emphasize that the civil service salary bill poses a risk to public accounts, putting them under pressure.
Risks also include public guarantees for credit lines, as well as renegotiation of public-private partnerships. Gentiloni later added that the worsening drought in Portuguese territory is another risk associated with rising energy prices, affecting families, which are among the highest risks of poverty in the EU.
The Commissioner listed the measures of the family support package, which he considered to be substantial”, but insisted that countries should make the measures temporary and as targeted as possible. “It is not easy, but it is our call,” he stressed. Gentiloni.
On the other hand, Brussels explains that the “positive revenue performance should continue into 2023”, while expenditure growth remains subdued, given the end point in the measures related to the pandemic and “end of planned energy-related measures”.
(News updated at 11:00 with more information and explanations from Paolo Gentiloni)