Bank of Portugal’s gloomy economic forecast at odds with government

The Bank of Portugal expects a strong deceleration of the Portuguese economy in a pessimistic revision issued today.

The forecasts is for a drop in economic activity between now and 2021, with GDP growth of 2.1% this year, 1.8% in 2019, 1.7% in 2020 and 1.6% in 2021.

The predictions are at odds with the government and other national and international organisations and are published in the December Economic Bulletin released today.

“The period 2018-2021 should be a phase of maturing of the economic cycle, maintaining the growth trajectory but at a progressively lower level,” predicts the central Bank.

Mário Centeno’s agreed State Budget for 2019, points to an expansion of 2.3% in GDP this year and of 2.2% in 2020.

The Bank of Portugal cites, “a downward revision of export growth, which reflects the review of assumptions about the evolution of external demand and the incorporation of the most recent information.”

Urged to comment on the figures, Economy Minister Pedro Siza Vieira says that the government does not comment on economic forecasts from other institutions.

As for tourism, the Bank of Portugal is optimistic about the future of tourism in Portugal and predicts, “the maintenance of a relatively strong growth of tourism exports in the coming years”, even if challenges are expected.

“These positive mutterings are subject to uncertainty and risks, as tourism is directly linked to the global economic cycle and the opening up of competing destinations also may negatively affect Portuguese tourism exports.

A growth in tourism exports is predicted, which should be “higher than the prediction for total exports of goods and services and GDP, although lower than in 2017,” says the bank.

The report states that, “these positive prospects for tourism in Portugal, however, present important challenges,” such as “high competition,” which “makes it essential to continue to focus on factors of tourist attractiveness not focused on price competitiveness, namely in an increase in the quality and added value of the services offered that contribute to the loyalty of visitors and to an increase in average revenue,” and that this, “will maintain a high growth of tourism exports in parallel with the development of segments with growth margin, such as business tourism.”

The report refers to Alojamento Local, “in particular small-scale local accommodation has made a strong contribution to increasing the country’s overall offer to foreign visitors,” which has “sustained a significant part of the development of this activity.”

“The predictable increase in tourist intensity brings obvious benefits to the country’s economy but also poses some challenges”, namely “risks of hostility by local inhabitants, deterioration of the tourism experience and the degradation of the natural, cultural and historical heritage,” which is why the bank advises, “a better distribution of non-resident tourism throughout the year and in regional terms.”

“Progress in these areas should be deepened in order to avoid potential congestion effects in the high season or under-utilization of infrastructure in the low season, as well as the negative impact of seasonality on the labour market,” adds the bank, considering that, “investment in transport infrastructure and other tourist facilities should not be overlooked, in order to avoid bottlenecks.”

Finally, the BoP also argues that “the regulatory framework of the sector should allow the orderly development of new business models”, namely those associated with new technologies.