## IMF Executive Board Concludes 2024 Article IV Consultation with Portugal

_IMF News, October 2, 2024_

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## Bibliographic details
- Published: October 2, 2024

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### Overview and recent performance
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Portugal.
- Portugal recovered strongly from the successive shocks that hit the global economy since the pandemic.
- Growth in 2023 continued to exceed the euro area average, driven by strong private consumption, net exports, and investment supported by EU funds.
- Labor force participation increased and net positive migration led to higher hours worked while unemployment remains at historically low levels.
- Inflation has decelerated fast.
- A large fiscal surplus was achieved in 2023, and public debt was reduced to 99 percent of GDP—a reduction of 36 percentage points of GDP since 2020.
- The external position strengthened, supported by vigorous exports including tourism, EU funds, and improved terms of trade.
- Financial stability indicators improved, reflecting a reduction in systemic risks.
- Near-term outlook: growth is projected to remain robust and inflation is projected to decelerate further.
- Medium-term constraints: low productivity growth, population aging, and subdued investment.

### Executive Board assessment — key messages
- Directors commended Portugal’s remarkable recovery, with economic growth exceeding its pre‑Covid trend and euro area growth, and noted the impressive reduction in public debt.
- Persistent structural challenges include demographic pressures, insufficient investment, and subdued productivity that constrain potential growth.
- Directors encouraged:
  - Maintaining prudent fiscal policy.
  - Closely monitoring risks in the financial sector.
  - Promoting greater productivity and the green transition, including continued leveraging of EU funds.
- Directors viewed targeted small fiscal surpluses, combined with the ECB’s gradual monetary policy loosening, as appropriate to achieve a soft landing.
- A neutral fiscal stance over the medium term would further reduce debt and rebuild fiscal buffers.
- Careful calibration of new tax cuts and spending increases, complemented as needed by offsetting measures, will be important.
- A comprehensive tax reform to simplify the tax system and reduce tax expenditure could generate significant fiscal space for higher public investment.
- Importance of improving spending efficiency and addressing aging‑related spending pressures was underscored.

### Financial sector and macroprudential policy
- Directors welcomed the decline of systemic financial risks, while calling for continued vigilance, particularly regarding risks stemming from the real estate sector.
- Authorities are encouraged to stand ready to recalibrate macroprudential tools as needed.
- As high interest rates strained borrowers’ repayment capacity:
  - Directors welcomed the introduction of a sectoral systemic risk buffer for household loans secured by residential properties.
  - Directors encouraged the authorities to consider introducing a positive neutral countercyclical capital buffer to further strengthen financial stability in potential downturns.
- Further improvements to the AML/CFT framework will be critical to safeguard the integrity of the financial system.

### Structural reforms and green transition priorities
- Reforms needed to increase productivity and promote faster income convergence with the euro area include:
  - Product market reforms, including streamlining regulations at all levels of government.
  - Reforms for a more flexible labor market.
  - Digitalization and upskilling the labor force.
- Directors appreciated the authorities’ ambitious targets for the green transition, which could be achieved by:
  - Continued progress toward carbon tax adjustments.
  - Further reducing fuel subsidies.
  - The planned broadening of the EU emission trading system coverage.

### Key statistical indicators (Table 1: Portugal: Selected Economic Indicators)
- Real GDP (percent, year-over-year):
  - 2022: 6.8
  - 2023: 2.3
  - 2024: 1.9
- Private consumption (percent, year-over-year):
  - 2022: 5.6
  - 2023: 1.6
  - 2024: 1.7
- Public consumption (percent, year-over-year):
  - 2022: 1.4
  - 2023: 1.0
  - 2024: 2.1
- Gross fixed investment (percent, year-over-year):
  - 2022: 3.0
  - 2023: 2.6
  - 2024: 3.5
- Exports (percent, year-over-year):
  - 2022: 17.4
  - 2023: 4.1
  - 2024: 2.8
- Imports (percent, year-over-year):
  - 2022: 11.1
  - 2023: 2.2
  - 2024: 3.3
- Contribution to Growth — Total domestic demand:
  - 2022: 4.5
- Contribution to Growth — Foreign balance:
  - 2022: 0.9
  - 2023: -0.2
- Resource utilization — Employment / Unemployment rate (percent, average):
  - 2022: 6.2
  - 2023: 6.6
  - 2024: 6.5
- Prices:
  - GDP deflator:
    - 2022: 5.0
    - 2023: 7.1
  - Consumer prices (HICP):
    - 2022: 8.1
    - 2023: 5.3
    - 2024: 2.5
- Fiscal indicators (percent of GDP):
  - General government balance:
    - 2022: -0.3
    - 2023: 1.2
    - 2024: 0.2
  - Primary government balance:
    - 2022: 1.5
    - 2023: 3.1
  - General government debt:
    - 2022: 112.4
    - 2023: 99.1
    - 2024: 94.4
- Current account balance:
  - 2022: -1.1
  - 2023: 2.0
- Nominal GDP (billions of Euros):
  - 2022: 242.3
  - 2023: 265.5
  - 2024: 278.1

*Press Release No. 24/353 — IMF Executive Board Concludes 2024 Article IV Consultation with Portugal.*

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## References

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_Source: https://www.imf.org/en/news/articles/2024/09/30/pr-24353-portugal-imf-executive-board-concludes-2024-article-iv-consultation_