## IMF Executive Board Concludes 2023 Article IV Consultation with Portugal

_IMF News, June 22, 2023_

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## Bibliographic details
- Published: June 22, 2023

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### Macroeconomic performance and near-term outlook
- GDP surpassed the pre-pandemic level in the first quarter of 2022 and growth averaged 6.7 percent for 2022.
- Growth in Q1 2023 was 2.5 percent (year-on-year).
- Growth projections:
  - 2023: 2.6 percent
  - 2024: 1.8 percent
- Inflation dynamics:
  - Headline inflation peaked in late 2022; core inflation has been stickier due to limited slack, high profit margins, and tight labor markets.
  - Inflation is expected to continue to ease over 2023 but remain above 2 percent in the near term.
- Labor market and wages:
  - Wage growth has accelerated, partly reflecting minimum wage hikes and labor shortages.
- External sector:
  - Current account deficit is expected to narrow as terms-of-trade normalize and external demand strengthens.

### Fiscal outcomes and public debt
- Fiscal outcomes:
  - Fiscal deficit narrowed to 0.4 percent of GDP in 2022, despite new fiscal support measures, mainly reflecting stronger tax revenues.
  - Fiscal position in 2023 is expected to be broadly similar to 2022.
- Public debt:
  - Public debt fell below its pre-pandemic level to 113.9 percent of GDP in 2022.
  - Public debt is set to remain on a downward path in 2023 and over the medium term.
- Fiscal policy stance and guidance:
  - Maintaining a contractionary fiscal policy stance in 2023 is appropriate to build fiscal space and support monetary policy in reducing inflation pressures.
  - If growth weakens appreciably, automatic stabilizers should be fully deployed; fiscal overperformance must be saved.
  - Further fiscal support should be reserved only for severe downside scenarios and designed to be temporary, non-price-distortionary, and targeted to the most vulnerable households.
- Medium-term fiscal reform priorities:
  - Revenue-side: simplifying the tax system and eliminating tax distortions, rolling back reduced VAT rates, reinstating carbon taxes, and improving tax administration.
  - Expenditure-side: reforms to contain age-related spending pressures from pensions and health care; increase the share of public investment relative to current spending.
  - Other: strengthen the medium-term budgetary framework, strengthen the financial sustainability of SOEs, and further improve the social safety net.

### Financial sector and housing risks
- Resilience:
  - The banking system and household and corporate sectors have been resilient to recent shocks so far.
- Emerging risks:
  - Tighter financial conditions, amid a buoyant housing market, have increased financial risks.
- Recommended financial sector actions:
  - Banks and supervisors should maintain vigilance on credit quality, market and interest rate risk, and liquidity management.
  - Continuously improving capital headroom is an important safeguard.
  - Efforts to contain risks from transnational money laundering should continue.
- Residential real estate measures:
  - Consider gradually phasing in a sectoral systemic risk capital buffer, holistically calibrated with other macroprudential measures, resolvability cost considerations, and procyclicality avoidance.
  - Support housing supply and affordability without generating market distortions to alleviate housing market strains.

### Structural reforms and investment absorption
- Productivity and reforms:
  - Structural policies should focus on boosting productivity growth.
  - Timely implementation of the NRRP is crucial; NRRP focuses on raising R&D, improving the education system, judicial system and business regulations, and scaling up green investment.
- Labor market:
  - Reforms to improve labor market performance and dynamism, supported by active labor market policies and skilling and re-skilling workers, would spur private sector-driven growth.
- Carbon pricing:
  - Receding energy prices provide an opportunity to gradually increase carbon taxes, combined with targeted measures to protect the most vulnerable.
- EU funds:
  - Efficient planning, budgeting, implementation, and oversight are key to maintaining strong investment absorption capacity of EU funds.

### Risks and scenarios
- Downside risks:
  - Tighter financial conditions potentially accompanied by a sharp correction in housing prices.
  - A deeper global or regional slowdown.
  - Persistently higher energy prices.
- Upside risks:
  - Continued strong tourism momentum and a resilient labor market.

### Key statistics — Portugal: Selected Economic Indicators (Year-on-year percent change, unless otherwise indicated)
- Real GDP:
  - 2021: 5.5
  - 2022: 6.7
  - 2023 (Projection): 2.6
- Private consumption:
  - 2021: 4.7
  - 2022: 5.8
  - 2023 (Projection): 1.0
- Public consumption:
  - 2021: 4.6
  - 2022: 1.7
  - 2023 (Projection): 3.0
- Gross fixed investment:
  - 2021: 8.7
  - 2022: 4.3
  - 2023 (Projection): (not listed)
- Exports:
  - 2021: 13.4
  - 2022: 16.7
  - 2023 (Projection): 4.4
- Imports:
  - 2021: 13.2
  - 2022: 11.1
  - 2023 (Projection): 2.8
- Contribution to Growth (Percentage points):
  - Total domestic demand:
    - 2021: 1.9
    - 2022: (not listed)
    - 2023 (Projection): (not listed)
  - Foreign balance:
    - 2021: -0.3
    - 2022: 2.0
    - 2023 (Projection): 0.7
- Resource utilization:
  - Employment:
    - 2021: 2.1
    - 2022: (not listed)
  - Unemployment rate (Percent):
    - 2021: 6.6
    - 2022: 6.0
- Prices:
  - GDP deflator:
    - 2021: 1.5
    - 2022: 4.0
  - Consumer prices (Harmonized index):
    - 2021: 0.9
    - 2022: 8.1
    - 2023 (Projection): 5.6
- Fiscal indicators (Percent of GDP):
  - General government balance:
    - 2021: -2.9
    - 2022: -0.4
  - Primary government balance:
    - 2021: -0.6
    - 2022: 1.4
    - 2023 (Projection): 1.8
  - Structural primary balance (percent of potential GDP):
    - 2021: 0.6
    - 2022: 1.2
  - General government debt:
    - 2021: 125.4
    - 2022: 113.9
    - 2023 (Projection): 107.9
- Current account balance:
  - 2021: -0.8
  - 2022: -1.3
- Nominal GDP (Billions of euros):
  - 2021: 214.7
  - 2022: 239.3
  - 2023 (Projection): 255.3

*Source: IMF — IMF Executive Board Concludes 2023 Article IV Consultation with Portugal.*

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## References

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_Source: https://www.imf.org/en/news/articles/2023/06/21/pr23225-portugal-imf-exec-board-concludes-2023-art-iv-consult_