Economists say economic growth, inflation, wages and housing are challenges for Medina

Slowing economic growth, inflation, rising interest rates on debt, housing and wage demands are among the main challenges the finance minister will face in preparing the budget, according to economists consulted by Lusa.

A slowdown in national economic growth, also reflecting the external situation, had been expected for many months, but updated forecasts from major economic institutions have given this scenario more traction.

For example, last week the Bank of Portugal (BdP) revised down its outlook for gross domestic product (GDP) growth to 1.5% in 2024.

“The main tasks will focus on responding to the prospect of a slowdown in the European and Portuguese economies,” said António Mendonça, president of the Order of Economists.

The view is shared by the director of the Competitiveness Forum’s research office, Pedro Braz Teixeira, who warns that “the external situation is deteriorating and it is possible that further deterioration will occur in the coming quarters.”

“The growth forecast has to be realistic and we have to be prepared for it to get worse,” he said.

Inflation and rising interest rates on public debt are also putting pressure on the budget structure, according to Joao Borges de Assunção, coordinator of NECEP – Forecasting Laboratory of Catolia-Lisbon.

“Inflation should be on average lower than this year, so the government will not be able to count on such large benefits from tax revenues in 2024,” he says.

The economist notes that “interest rates should start to rise more aggressively, but with only a relatively small portion of total debt being repaid next year, this is not yet a risk in the short term,” although he believes there are “significant” risks in the medium term.

António Mendonça also draws attention to this point, recalling that this year “there was a positive surprise in the form of the impact of inflation on the reduction of the debt burden, mainly as a result of increased tax revenues as a result of increased indirect revenues.” taxes.”

“It is clear that the general dynamism of the Portuguese economy, largely driven by tourism, has also contributed to this. This positive effect may be reduced or even eliminated next year. A fall in domestic demand, reduced pressure on energy prices and inflation could contribute to this,” he said.

Economist and professor at the University of Coimbra José Reis also emphasizes that “government revenues, benefiting from the so-called “inflation dividend” – higher prices, higher tax revenues – will certainly come under pressure from a possible slowdown in inflation.”

According to Pedro Braz Teixeira and Joao Borges de Assunsan, another problem for Fernando Medina in preparing the budget proposal will be wage requirements.

“There is widespread dissatisfaction with the state of public services, which is badly damaged by cuts in public investment, and expected strikes could only worsen citizens’ assessments. The deterioration of purchasing power from 2022, low unemployment and difficulties in recruiting specialists – especially in education and health – could lead to serious struggles that will be difficult to overcome,” says Pedro Braz Teixeira.

João Borges de Assunção emphasizes that “everything indicates that average inflation in 2024 will be well above 2%,” but believes that “any increase in wages or pensions above 2% will be of little responsibility.”

The issue of housing will also play a role in the next budget, the economist said, arguing that the area “requires structural reforms and political and social consensus.”

“A good principle would be to appoint a missionary group with the task of preparing a green paper on the housing market. It seems to me illusory to think that housing problems can be solved within the framework of fiscal policy,” he said.

According to José Reis, “budgetary expenditures caused by unfair benefits and the way the private sector puts pressure on the state (see the CIP proposal for wage increases, the costs of which will be mainly public) will continue to be under pressure in a context in which Government autonomy in the face of these interests appears limited.”

Among the problems listed by economists, Pedro Braz Teixeira also highlighted the end of enslavement.

“The government promised the end of captivations in 2024, but state investments until August amounted to only 39% of the budget, and in the SNA it is even worse (20%). In other words, all indications are that captivations are still very much in use. in 2023, so it will be very difficult to fulfill the promise to abruptly eliminate them next year,” he predicts.