PORTUGAL Trends and Developments Contributed by: Francisco Lino Dias, Teresa Madeira Afonso, Diogo Neves and Maria Sanches Afonso, PLMJ
Portuguese Economy at a Glance According to 2023’s previsions, both the EU and the Portuguese Public Finance Council fore - saw a substantial slowdown of the Portuguese economy, with a projected growth of 1% (EU forecast) and 1.2% (Portuguese forecast). This forecast relied on the expected stagnation of private consumption as a consequence of the higher interest rates. However, the Portuguese economy outper - formed projections and proved its resilience with a GDP growth of 2.3% for the whole year. Although the third quarter of 2023 was in decline (-0.2%), the final quarter of 2023 revealed a growth of 0.8%, therefore avoiding the Portu - guese economy entering a technical recession (when two consecutive quarters of negative eco - nomic growth are registered). In terms of the annual evolution of the main aggregates, exports were the biggest driver of economic growth, having increased by 4.2% in 2023. Domestic demand grew by 1.4% and pri - vate consumption contributed the most to this trend, with a rise of 1.6% compared to 2022. Public consumption grew by 1.2% and invest - ment rose by 0.8%. In fact, data show that the Portuguese economy continues a real convergence process with the EU, having grown more than double the rate of the euro area and the EU (0.5% growth) in 2023. In 2024 and 2025, it is expected that the Portu - guese economy will most probably continue to grow above the European average – albeit at a lower rate. On an annual basis, the Portuguese GDP is expected to grow 1.2% in 2024 and 1.8% in 2025 against 0.9% in 2024 and 1.7% in 2025 in the EU.
As with more than half of the world’s population this year, Portugal also went through elections in 2024. The result of these elections led to the appointment of a minority government, which will have to crunch the numbers with the oppos - ing political parties to ensure that government stability will not be deeply affected. The Harmonised Index of Consumer Prices (HICP) inflation rate decelerated significantly to a 2023 aggregate of 5.3% (year-on-year) (com - pared with 7.8% in 2022). Annual HICP inflation is expected to drop to 2.3% in 2024 and 1.9% in 2025 in line with the euro area. With the flattening of the inflation curve, Europe - an Central Bank interest rate cuts are expected. Outlook for the Real Estate Market The Portuguese real estate market took a “wait and see” approach in 2023. In fact, according to estimates by some of the leading real estate consultants operating in Portugal, there was a contraction in the volume of real estate trans - actions – with a decline of approximately 50% compared to 2022. Nevertheless, around 70% of these investments came from international investors, which reflects the attractiveness of the Portuguese real estate market to international players. In commercial markets – more specifically, in transactions involving industrial and logistics (I&L) assets – the market has matured, with demand increasing and diversifying. Despite the short supply, operators are beginning to select assets in different locations, which allowed the sector to diversify and expand. Office transac - tions accounted for around 10% of the commer - cial market.
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