Portugal: 2023 Article IV Consultation-Press Release; and Staff Report

IMF Staff Country Reports, June 22, 2023

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The economy sustained its dynamic recovery from the pandemic into 2022.
Growth is projected to soften to average 2.6 percent in 2023 and 1.8 percent in 2024.
Inflation is expected to continue to ease over 2023 but remain above 2 percent in the near term.
The current account deficit is expected to narrow as terms-of-trade normalize and external demand strengthens.
The banking system and household and corporate sectors have been resilient to recent shocks so far.
Tighter financial conditions, amid a buoyant housing market, have increased financial risks.
A stronger medium-term fiscal effort relative to the baseline, comprising both revenue and expenditure measures, would build fiscal space, mitigate debt-related risks further, and improve resilience to contingency risks.
Structural policies should continue focusing on boosting productivity growth.

Growth:
- 2023: 2.6 percent (average)
- 2024: 1.8 percent (average)
Inflation:
- Expected to ease over 2023
- Expected to remain above 2 percent in the near term
External sector:
- Current account deficit expected to narrow as terms-of-trade normalize and external demand strengthens

Resilience:
- Banking system, households, and corporate sectors have shown resilience to recent shocks so far
Emerging risks:
- Tighter financial conditions are increasing vulnerability
- Buoyant housing market has raised financial risks

Assessment:
- Debt-related risks warrant further mitigation through fiscal consolidation efforts
Recommendation:
- Implement a stronger medium-term fiscal effort relative to the baseline
- Combine revenue measures and expenditure measures to build fiscal space
- Aim to improve resilience to contingency risks