Daniela Soares Ferreira and Sonia Perez Pinto

Until 2024, there is about a year left, but until then, Romania can overtake Portugal in the European Commission’s ranking. We are talking about the wealth that each country can create per inhabitant: in this comparison, Portugal has been losing points since 2000 and could even drop five positions. At the moment, the Portuguese government is discounting this data, but there is the issue of inflation and war that can confuse the accounts. If this happens, Portugal will increasingly position itself at the tail end of Europe.

“Romania wants to grow, we want something else,” economist Joao Cesar das Neves sneers.

Enrique Tome, an analyst at XTB, is concerned about the data. But he says that, on the other hand, “this news serves as a warning that, if this is done, our country will be headed towards a catastrophic economic situation in the medium and long term.” Economist Ricardo Paes Mamede also has no hesitation: “Romania will surpass Portugal in terms of GDP per capita, measured in purchasing power parity. Yes, in this country they pay much less taxes. Everyone who wants to – and there are few who want to – can stay here. Or we can say that Romania has more poverty (23% vs. 18%), a much lower life expectancy (73 vs. 81 years), a lot more murders per 100,000 inhabitants (1.5 vs. 0.9), and that the country has lost almost 1/5 of the population over the past 30 years, and Portugal has grown by 5%,” he stressed on Facebook.

This concern, which is not new, intensified this week when the National Institute of Statistics released new data on the state of the Portuguese economy. The economy grew by 4.9% in the third quarter, while inflation fell to 9.9% in November. Good news, which does not surprise the economists contacted by our newspaper.

For João César das Neves, this growth in gross domestic product (GDP) was “expected”, despite the fact that domestic demand registered a smaller contribution to growth during this period, as families consumed less and investment also declined, moving from 3.5 % in the second quarter, down 0.4%. Numbers that allow an economist to state that “the scenario is getting bleaker, so growth should slow down”, therefore ensuring that this trend is “likely” to continue.

An opinion shared by Enrique Tomé. The XTB analyst admits that “the next quarterly figures should start to be revised down as inflation in Portugal remains high and should have an impact on economic activity”, recalling that “the impact of inflation along with the increase in the interest rate is starting to affect the purchasing power of families, which is already beginning to be representative in economic terms.” And he doesn’t hesitate: “This trend will continue and possibly worsen in the coming quarters.”

Paulo Rosa, an economist at Banco Carregosa, also notes that “as the economic downturn sets in, namely one punished by a decline in disposable income, it is likely that consumption and investment will contribute less and less to GDP growth”, adding that “in In the last stretch of the year, private consumption should slow down its contribution, and it is estimated that GDP in the fourth quarter will slow down from the current high rates.” Ricardo Evangelista, analyst at ActivTrades, cites as an example the latest European Commission estimates of the Portuguese economy in 2023, which suggest a slowdown in economic activity in our country. The forecast points to GDP growth of 0.7% next year, a significant slowdown that will reflect lower consumption and investment.

Inflation has dropped slightly

INE also reported that the year-on-year change in the consumer price index was 9.9% in November, compared to 10.1% in October, thus retreating slightly. The Banco Carregosa economist explains that “rising prices for fossil fuels, raw materials and agricultural products have increased inflation up the value chain, putting pressure on all other prices of goods and services down the chain, generalizing inflation as well as making it more persistent” . But he argues that it must be taken into account that “the decline in fossil fuel prices was a reality and could dictate a peak in inflation sometime in this fourth quarter.”

César das Neves admits that the climate is very uncertain and the trend continues to be inflationary, advising that it is necessary to “be careful”, and despite acknowledging that “a big increase in inflation should not be expected”, he also believes that “it should not decline quickly.”

The statistical office data came at a time when the president of the European Central Bank (ECB) warned that inflation may not have peaked yet. However, Ricardo Evangelista says the published figures “were lower than expected because the cost of energy unexpectedly dropped.” On the other hand, he mentions “the so-called inflationary spiral, in which rising prices cause wage increases and lead to further price increases, is a process that is still unfolding”, arguing that the best way to control this spiral “is through restrictive monetary policy”.

Enrique Tome is more optimistic. The analyst believes that “we are already close to the transition point (which was talked about so much in 2020) in terms of inflation,” adding that in Europe “there is a slight delay in numbers, however, we have seen a strong downward correction over the past two months prices for various raw materials, namely energy, as well as restrictions in the distribution chains are improving.”

What about interest?

Will the ECB keep raising interest rates if inflation is at an uncertain level? Cesar das Neves argues that “it will and should rise very strongly” as the ECB rate remains well below the rate of inflation. In turn, Enrique Tomé is of the opinion that, despite visible signs of a slowdown in inflation in Europe, it is still “too early to move forward with the idea that the peak has already been reached”, and therefore believes that “these data will not yet affect the decision of the European central bank to raise interest rates.

Economist at Banco Carregosa says that after the slowdown in German inflation data, “the money market expects a 50 basis point increase, which is 75% likely, while the probability of a 75 basis point increase has decreased to 25%.”

Finally, Ricardo Evangelista argues that the ECB should raise interest rates less. “A slowdown in inflation in the euro area, although mainly due to falling energy prices, should result in the next interest rate hike being lower than previous ones and staying at 0.5%,” he predicts.