World Economy

Portugal Grows on Strong Domestic Demand

The Bank of Portugal sees 2.5% growth this year.The Bank of Portugal sees 2.5% growth this year.

Portugal’s economy grew 2.8% in the second quarter from the same period a year ago, maintaining its highest growth rate in a decade thanks to strong domestic demand and investment, official data showed on Monday.

Growth has bounced back strongly this year after Portugal’s 2011-14 debt crisis, allowing the economy to expand at a faster rate than the eurozone as a whole after years of lagging behind, Reuters reported.

“This data is a positive signal for the sustainability and balance of the Portuguese economy, which has grown for 15 consecutive quarters and at an average rate above the European average,” Finance Minister Mario Centeno told reporters.

The recovery has led to unemployment falling strongly this year and has been fueled by a jump in consumer confidence to its highest level since 1997. Booming tourism has also helped.

“The positive contribution of domestic demand remained strong, more intense than in the previous quarter, due to the acceleration of investment,” said the National Statistics Institute in its first reading of gross domestic product.

Filipe Garcia, head of consultancy Informacao de Mercados Financeiros, said the second quarter figure holds out the possibility of the economy growing 3% this year. So far the government has officially forecast growth of 1.8% in 2017, after growth of 1.4% last year. The Bank of Portugal sees growth of 2.5% this year.

Still, quarter-on-quarter growth in the second quarter slowed to 0.2% from 1% in the first quarter, the institute said.

Morgan Stanley said in a research report that the quarterly growth slowdown was larger than expected. “Net exports seem to explain the slowdown, while the contribution of domestic demand increased, supported by investment,” it said. “This could therefore suggest that Q2 was more of a hiccup than the return of a weak growth trend.”

The third quarter tends to be strong as it is the period of the year when tourism makes the biggest contribution.

Data released on Monday showed that overnight stays at hotels jumped 9.7% in the first six months of the year compared with last year.

The stronger mood in the Portuguese economy has been helped by a sharp reduction of the budget deficit, to within European Union guidelines, after years of overshooting.

The country’s unemployment rate has also dropped from a peak of over 17% in 2013 to 8.8% at the end of June–falling below the eurozone’s average for the first time since 2010.

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