New Delhi : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Portugal on Friday, June 23, 2022.
Growth in 2021 rebounded to 4.9 percent, driven by private consumption, investment, exports of goods, and gradually recovering tourism. The unemployment rate dropped to pre-pandemic levels on account of rising employment and participation rates. While growth strengthened in early 2022, the war in Ukraine is expected to dampen the recovery for the rest of the year through a significant deterioration in external demand, higher commodity prices, longer-lasting supply-side disruptions, lower confidence and tighter financial conditions. Growth in 2022 is projected to average 5.8 percent and 1.9 percent in 2023. Inflation has accelerated on the back of higher commodity prices and is projected to average 6.1 percent in 2022, before receding to 3.5 in 2023. The current account deficit is set to widen in 2022, before narrowing over the medium term as exports and tourism strengthen.
Despite the accommodative fiscal stance in 2021, the headline fiscal deficit dropped to 2.8 percent of GDP, reflecting buoyant tax revenues and some capital underspending. In 2022, the fiscal deficit is expected to narrow to 2.2 percent of GDP, reflecting the recovery and unwinding of remaining temporary Covid-19 economic support measures. On this basis, fiscal policy will remain suitably accommodative with measures to mitigate impacts of high energy prices and grant-financed investment supporting the recovery. Public debt is projected to steadily decline to below 100 percent of GDP over the medium term.
The corporate sector has withstood recent shocks well so far, although solvency gaps are estimated at more than 2 percent of GDP. Credit quality deterioration after the end of the relatively extensive loan moratoria has yet to fully materialize. Bank capital, profitability, and asset quality have steadily improved in 2021 but remain below EA averages. A few legacy domestic banks are still to complete their restructuring process. As in rest of EA, residential real estate prices have risen sharply, though attendant risks appear contained.
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