The Public Finance Council (CFP) in Portugal has improved its GDP outlook for this year to 6.7%, but reduced it for 2023, predicting a steep slowdown to 1.2%.

Within the latest report on the country’s economic and fiscal outlook 2022-2026, the Public Finance Council, chaired by Nazaré Costa Cabral, forecast a growth acceleration in the economy to 6.7% in 2022, from 4.9% in 2021.

This increase, compared to the forecast in March is predominantly down to the “strong performance” registered in the first six months of the year.

However, for 2023, an “expressive slowdown” in growth is forecast, down to 1.2%, due to factors including sluggish external demand, inflationary pressures and the economy’s deteriorating financing conditions.

“The lower contribution of domestic demand reflects the deceleration dynamics projected for all its components (especially private and public consumption), while the reduction in the contribution of net exports reflects the expectation of a sharp deceleration in exports of goods and services, partially mitigated by an expected slowdown in imports”, the report states.

The CFP forecasts private consumption will rise by 5.1% this year and 0.5% in 2023, public consumption will increase by 1.9% in 2022 and 0.3% in 2023, whilst investment will rise 3.6% this year and 2.9% next year.

In addition, exports are forecast to rise by 17.8% this year, declining to 3.6% next year, whilst imports are set to increase by 12.1% this year and 2.6% in 2023. The report also predicts GDP growth will accelerate to 2% in 2024, and stabilise at 1.8% in the medium term.

The CFP added that the level of real GDP will be 2.4% over the pre-pandemic level this year, and forecasts “that the medium-term level for real GDP projected in the pre-pandemic (October 2019) should only be reached in 2025.”

However, the Council cautioned that there is “high uncertainty”, with “the risks being predominantly of an external nature, and tilted downwards for economic activity growth and upwards for inflation.”