Portugal's Economic Growth Driven by Strong Domestic Demand: Insights from CaixaBank Research

Economic Growth in Portugal

Portugal’s National Statistics Institute confirmed that the economy grew by 0.2% quarter-on-quarter in Q3, translating to 1.9% year-on-year growth. This growth is significantly supported by domestic demand, particularly highlighting the strength of private consumption.

Domestic Demand and Foreign Trade

The dynamism of domestic demand has been crucial in sustaining GDP growth in Q3. However, foreign demand has negatively impacted growth by 0.78 pps, as exports grew at 5.3% compared to imports at 7%. This highlights Portugal's high dependence on imported goods and services, posing a risk to CaixaBank Research’s GDP growth forecast of 1.7% for 2024.

Looking ahead, 2025 is expected to bring a more optimistic outlook with a projected GDP growth of 2.3%, driven by a robust labor market and investment fueled by lower financing costs and NGEU funds.

Inflation Trends

In November, inflation rebounded to 2.5%, up from 2.3% in October, primarily due to energy prices influenced by seasonal factors. The core inflation rate held steady at 2.6%, aligning with recent historical trends. The forecast for average inflation in 2024 remains at 2.4%.

Employment Surge

Employment figures also surprised positively, showing a 1.4% year-on-year increase and reaching 5.105 million employed individuals. Wage growth has accompanied this trend, with real wages rising by over 4% year-on-year in Q2. Notably, wages in the trade sector increased by 6.0% in October, significantly outpacing inflation.

Foreign Direct Investment Growth

Foreign direct investment (FDI) has seen a 70% increase, amounting to 194.5 billion euros, marking a 5% rise from the end of 2023. The primary investors in Portugal are Spain, the Netherlands, and Luxembourg, with finance being the leading sector at 21% of total FDI. Real estate investment has also gained traction, now at 17.2% of total FDI, predominantly from the US and Brazil.