The more optimistic OECD expects Portugal’s economy to grow 1.6% this year, with inflation at 2.4%.

The OECD is more optimistic about the economy and inflation rate in Portugal, forecasting GDP growth of 1.6% in 2024 and a slowdown in price growth to 2.4%, it announced this Thursday.

According to economic forecasts from the Organization for Economic Co-operation and Development (OECD), Portugal’s economic growth will slow from 2.3% in 2023 to 1.6% in 2024 (from 1.2% previously forecast), recovering to 2% in 2025.

The OECD’s forecast is one-tenth higher than the Treasury’s Stability Framework for 2024-28, which in a unchanged policy scenario forecast growth of 1.5% this year, in line with what was planned in the OECD budget. Status for 2024 (OE2024).

Among the main national and international institutions, the Bank of Portugal is the most optimistic institution, expecting gross domestic product (GDP) growth of 2%, the Council of Public Finance – 1.6%, the International Monetary Fund – 1.7%, and the European Commission – 1. 7%. forecasts growth of 1.2%.

The Paris-based organization cut its inflation forecast to 2.4% this year and 2% in 2025 from 3.3% and 2.4%, respectively, previously forecast, due to stable energy prices and a slowdown in job searches.

“A tight labor market and falling inflation are supporting growth in real wages and private consumption, and the implementation of the Recovery and Resilience Plan (PRR) will increase investment,” the OECD said.

Thus, despite indicating that moderate global growth and high uncertainty are holding back exports and investment, he believes this situation will “dissipate as external demand picks up.”

The OECD says Portugal’s fiscal policy should become less restrictive in 2024, forecasting that the budget surplus will fall from 1.2% of gross domestic product (GDP) in 2023 to 0.3% in 2024.

“The introduction of the PRR, a reduction in personal income tax and an increase in social payments will support activity and compensate for the gradual withdrawal of support measures to mitigate the inflation shock in 2024,” he states.

At the same time, he notes that the minimum wage increased by 7.9% in 2024 and expects a further increase of 4.3% in 2025, which will likely lead to an increase in household income.

However, “rising labor costs could constrain low-wage employment and planned large public investment,” while “permanent cuts in personal income taxes could exacerbate inflationary pressures” and interest rates will continue to weigh on activity.

The OECD forecasts that the government debt ratio will fall from 99.1% in 2023 to 95.7% this year and to 92.5% in 2025.