Disappointment with Portugal’s GDP in Q1

This decline is largely attributable to a correction following the strong growth recorded in the previous quarter (1.4% quarter- on-quarter), which was associated with temporary factors. In particular, private consumption received a significant boost in the last quarter of 2024 from the increase in household disposable income, driven by changes to the personal income tax system (with retroactive effect from the beginning of 2024) and the payment of the exceptional supplement to pensioners in October 2024. Taking the last two quarters together (Q4 2024 and Q1 2025), activity growth in average terms stood at 0.45% per quarter. In any case, the Q1 figure was lower than expected and contrasts with the preliminary indicators, which did not suggest a contraction. On the consumption side, retail sales excluding fuel grew 0.7% compared to the previous quarter, while car sales were up 13% quarter-on-quarter. The European Commission’s economic sentiment indicator stood at 104.4 points in Q1, following a downward trend during the course of the quarter but always remaining above the 100-point threshold which indicates expansion. In any case, the poor figure for Q1 2025 introduces downside risks to the CaixaBank Research forecast for Portuguese GDP growth in 2025 as a whole (2.4%).

The IMF, the Catholic University (NECEP) and the CFP revised their forecasts by –0.2/–0.3 pps in April relative to their previous estimates. Still, the outlook remains positive and these three agencies continue to expect the economy to grow by around 2% in 2025.

The headline CPI rose to 2.1% in April and the same was true of the core rate (both up from the 1.9% recorded in March). The monthly changes in both the core and the headline CPI (0.8% and 0.7%, respectively) once again exceeded the historical pre-pandemic average (0.5% in both cases). Despite the fact that the Brent oil price has already fallen by around 25% year-on-year (at the time of the closing of this report), the contribution of the energy component to disinflation is still modest and inflation in fresh foods this year has been above 2.5% on average.

The number of tourists increased by 2.3% year-on-year, overnight stays fell by 0.5% and the sector’s total revenues were up 4.8%. This pattern has been driven by a calendar effect associated with the different dates of Easter (this year it fell in April and last year in March). We expect to see a slight improvement over the coming months, supported by what should be the main drivers of the sector this year: the recovery of households’ purchasing power, the diversification of source markets and a reduction of seasonality.