Economy Rises and Inflation Slows, But “Scenario Darkens”

Economia sobe e inflação abranda mas "cenário vai ficar mais negro"


by Daniela Soares Ferreira and Sónia Peres Pinto

The economy grew by 4.9% in the third quarter, inflation slowed to 9.9% in November, according to data from INE. Good news, which does not surprise the economists contacted by i, but they recognize that the danger lies in what may yet come.

According to João César das Neves, this increase in gross domestic product (GDP) was “expected”, despite the fact that domestic demand made a smaller contribution to growth during this period, as households consumed less and investment also fell, from 3.5% growth in the second quarter to a contraction of 0.4%. Figures that led the economist to state that “the scenario is getting darker, so growth should slow down”, thereby guaranteeing that this trend is “likely” to continue.

A view shared by Henrique Tomé, an analyst at XTB, when he admitted that “next quarterly figures should be revised downwards as inflation remains high in Portugal and should have an impact on economic activity”, recalling that “the effects of inflation along with the rise in interest rates are beginning to have an impact on household purchasing power, which is already becoming representative in economic indicators”. in the coming quarters”.

Paulo Rosa, an economist at Banco Carregosa, also mentions that “as the economic slowdown sets in, which is punished by the fall in disposable income, it is likely that consumption and investment will contribute less and less to GDP growth”, adding that “In the end of the year, private consumption should slow its contribution and GDP is estimated to slow in the fourth quarter from its current strong performance,” yet he believes “the product will be good throughout the year.” continue to perform, confirming the 6.5% expected by the Executive, but retreating to a growth between stagnation and a 2% increase in the fourth quarter in homologous terms and in chain reversal to negative, after six consecutive quarters of increase, since the fall of 3.2% in the first quarter of 2021”.

Ricardo Evangelista, analyst at ActivTrades, gives as an example the latest estimates of the European Commission for the performance of the Portuguese economy in 2023, which indicate a slowdown in economic activity in our country. The forecast points to GDP growth of 0.7% next year, a significant slowdown, which will reflect lower consumption and investment.

Inflation is decreasing slightly

INE also reported that the year-on-year change in the consumer price index was 9.9% in November, a value compared to 10.1% in October, and has therefore fallen slightly. Banco Carregosa’s economist explains that “rising prices of fossil fuels, commodities and agricultural products drove up inflation upstream of the value chain, putting pressure on all other prices of goods and services downstream, making inflation more general and the and more stubborn”. But he argues that it should be taken into account that “the reduction in fossil fuel prices has been a reality and could dictate the peak of inflation sometime in this fourth quarter”.

César das Neves, on the other hand, admits that the climate is very uncertain and tensions remain inflationary. he also believes that “it shouldn’t go down anytime soon”.

The statistics office’s data comes at a time when the president of the European Central Bank (ECB) has warned that inflation may not yet have peaked. However, Ricardo Evangelista says that the published figures were “below expectations because energy costs fell unexpectedly”. On the other hand, he warns, “the so-called inflationary spiral, in which rising prices force wage increases and result in further price increases, is a process that is still unfolding.” not yet reached”, arguing that the best way to contain the inflationary spiral “is through restrictive monetary policy”, defending the words of Christine Lagarde “who intends to justify the rate hikes that are sure to happen” .

He is more optimistic when he considers that “we are already close to the transition point (so much talked about in 2020) regarding inflation”, adding that in Europe “there is expected to be a slight slowdown in data, but the over the past two months we have witnessed strong downward corrections in the prices of several commodities, namely energy, and restrictions on the distribution chains are also improving”.

Taking these two indicators into account, the analyst says inflation is expected to continue to slow. “Nevertheless, it is also important to note the efforts of the ECB in taking measures to curb the rise in prices, including the rise in interest rates that have reduced household purchasing power,” he says.

Will prices continue to rise? João César das Neves ignores the guarantee: “Of course, a price shock of this magnitude will continue to have effects and make everyone poorer (supermarkets are the same, they absorb part of the margin increase). We are poorer and all we can do is share the burden more fairly (or not)”.

Paulo Rosa believes that as supply chains normalize, “prices in supermarkets will also tend to slow the rate of increase” and therefore “it is likely that there will be a slight price reduction in 2023, and there may even be a reversal of rising prices in the event of an economic downturn, until then consumer disposable income will continue to fall due to rising interest rates.”

Ricardo Evangelista also says that due to the spiral of inflation “the prices of many products and services should continue to rise for the foreseeable future”. And he has no doubts: “As wages may not rise at the same rate, family budgets may tighten.” Henrique Tomé, in turn, fears that “inflation could take root in certain sectors of the economy”. Nevertheless, he says, taking into account that energy prices are falling “and inflationary pressures on other products are easing as well, it is expected that prices charged in supermarkets can be adjusted downwards in the medium term”.


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