IMF Trims Portugal Growth, Warns of Debt Risks

The International Monetary Fund has revised down its estimate for growth in Portugal’s gross domestic product this year to 2.3%, bringing it into line with the Socialist government’s own forecasts.

In a report released Sunday under its own Article IV, at a time when the government is preparing its draft state budget for 2019, the IMF says that economic growth is expected to moderate” this year after “robust” growth in 2017 driven by investment and exports, PortugalNews reported.

The IMF has lowered its 2018 forecast from the 2.4% it was projecting in April, so that it is now in line with the figures in the government’s Stability Program 2018-2022.

For next year, however, the IMF is less optimistic than the government, projecting GDP growth of just 1.8% if significant economic reforms are not adopted that could change the current scenario.

“Investment and exports should remain important drivers of growth, albeit at a slower pace, while private consumption eases somewhat,” the report states. “Employment growth is expected to decelerate, and the labor market should continue tightening in 2018, with average unemployment declining below 7.5%, supporting moderate real wage growth.”

The IMF estimates that in 2018, the country’s external balance will deteriorate due to the growth of imports and that the budget deficit will shrink further, helping to reduce public indebtedness as a percentage of GDP, although the trajectory of public debt “remains subject to significant risks”.

The deficit is set to be 0.7% of GDP in 2018 and debt 121% at the end of the year, down from 126% in 2017, the IMF says. If public policies remain constant, it should be 103% by 2023.

The IMF warns, however, of significant external risks. “Portugal would be negatively affected by a significant weakening of growth in the eurozone,” it argues. “Renewed market instability related to policy uncertainty in key eurozone countries could increase Portuguese bond yields and raise borrowing costs for most agents.”

Similarly, an additional tightening of financing conditions at a global level could have knock-on effects for companies and families in debt.