Particularly noteworthy was the strong performance of the consumption indicators, especially car sales and air traffic, suggesting that tourism remains a major driver of economic activity. Moreover, the confidence indicators are showing a positive trend across all sectors, with the exception of construction.
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GDP performed better than expected in Q1 2023, rallying 1.6% quarter-on-quarter and 2.5% year-on-year thanks to the buoyancy of the foreign sector, especially tourism.
Preliminary GDP data published by the National Statistics Institute indicate a notable acceleration in growth in the final quarter of 2023, with an increase of 0.8% quarter-on-quarter and 2.2% year-on-year in Q4.
The Greater Lisbon region accounted for 18% of all home sales in Portugal in 2023. Of these, 23% involved buyers with tax residence outside Portugal and the EU.
The initiation of the ECB’s monetary policy normalisation process has led to an acceleration in house prices, especially in markets with a significant mismatch between insufficient supply and dynamic demand. The economies in which real prices have increased the most in the last year and a half, and where the residential markets are showing signs of more significant overvaluation, include Portugal, Bulgaria, Hungary, the Netherlands and Estonia. In contrast, the markets of large economies such as Germany, Sweden, France and Luxembourg remain overvalued, but have corrected the strong price growth they experienced in the decades leading up to the pandemic, reducing signs of overheating.
Foreign purchases in Spain have made a surprisingly strong recovery after the pandemic-induced restrictions were lifted. Indicators related to purchase intent suggest that this positive trend will continue in the short term, especially among the German and Nordic populations. The long-term outlook for foreign demand is also promising considering the demographic trends in Europe: the imminent retirement of a large generation of Europeans points to a significant increase in potential demand, especially between 2026 and 2030. Although Spain has considerable strong points to attract this demand, such as the high competitiveness of its tourism industry and the country’s perceived safety, the importance of creating an attractive regulatory and fiscal environment, whilst also adopting appropriate housing policies to mitigate its impact on the local population, should not be underestimated.
Although the drop in activity has been strong, the impact of COVID-19 on the Portuguese labor market is being more contained for the moment, thanks to the temporary adjustment of employment and teleworking.
With the 2023 data now published for almost all the main macroeconomic variables, we have revised our macroeconomic forecast scenario for the Portuguese economy for 2024-2026. That said, the changes are not particularly significant, with the exception of the forecasts related to the real estate market.
The indicators for Q1 suggest that economic activity is more buoyant than expected, and that GDP growth in the first quarter could exceed our forecast of 0.4% quarter-on-quarter.
GDP provides a positive surprise in Q1, with quarter-on-quarter growth of 0.7%, according to the first provisional estimate published by the country’s National Statistics Institute.This exceeds our forecast of 0.4% and, therefore, introduces upward risks to our forecast for the year as a whole, which until now has stood at 1.6%.
We analyse the improvement in Portuguese companies’ financial position due to their reduced levels of debt.