Although the government has decided to increase the minimum wage, go forward with a more rapid reduction in IRS surcharge and provide for a full replacement of wage cuts in the public service later this year, the International Monetary Fund (IMF) does not believe these policies are sufficient to prevent a sharp braking in private consumption and a lower growth rate than that recorded last year.
in a statement published this Thursday at the end of the third post-program evaluation troika to Portugal, the IMF presented forecasts for the Portuguese economy that are much more negative than those of the government, a scenario in which the structural weaknesses of the country and its high level of debt combine with progressive disappearance of positive external conditions to put the economy on a downward path.
the bottom predicts GDP growth in 2016 of 1.4%, a value which is below the 1.5% recorded last year . And that is further away from the forecasts of the Government, which in OE outline initially delivered in Brussels point to a growth of 2.1% (as amended this value should be lower because of the new measures to reduce the deficit but included) . The IMF’s projections are made based on the plans submitted by the Government in the State Budget draft.
The main reason behind the forecast of an economic downturn is in progress that is expected in private consumption. The IMF sees this indicator to move from a growth of 2.7% in 2015 to 1.5% in 2016.
This sudden stop would cause the contribution of domestic demand to economic growth went from 2 2 percentage points last year to only 1.5 percentage points this year.
These numbers are far from what the Government expects that projects a growth in private consumption of 2.6% in 2016, keeping the same rate as last year. The executive based this prediction on the fact that, with the measures it has already taken and plans to take, register immediately an increase in the disposable income of the Portuguese.
The fund’s leaders do not believe that, in the Portuguese case a policy like the one that the Government intends to continue to bet on a rise in household income through fiscal stimulus and increase in the minimum wage might have more than a marginal effect on consumption and economic activity. In fact, the IMF sees what happened last year – that too with an expansionary fiscal policy (the primary surplus fell from 3.5% in 2014 to 3% in 2015) and with the help of the international situation the economy has not accelerated as much as the Government planned. – as an example of the limited effect of this type of strategy
in 2016, with the possible reduction of the positive effects of the external environment and the structural weaknesses of the economy to make themselves felt, the result may be even an economic downturn, the fund provides extend in 2017, the year for which estimates growth of 1.3%.
“Given that the economy still faces debt levels high and structural constraints, the IMF staff expects growth gradually decrease as to dissipate the impact of favorable external conditions, “says the statement issued Thursday by the fund.
Another source considerable differences between the projections of the government and the IMF are in exports. The fund’s technicians are clearly more pessimistic than the Government in relation to the evolution of the economies of trading partners Portugal and anticipate that sales to foreign goods and services will grow 3.9%. The government expects 4.9%.
In addition to external demand, behind the more negative projection may also be convinced that Portugal may be losing competitiveness in international markets.
Already in previous reports, soon after the departure of troika of Portugal, the IMF argued that without further structural reforms to make the economy more competitive, Portugal was destined to see its growth rate gradually moving towards its potential level at this point is too low, leaving just over 1%. With the new government, this type of assessment remained.
Still, despite this economic slowdown scenario, the fund anticipates a continuation of a downward trend in unemployment, with the rate falling from 12.3% in 2015 to 11.5% in 2016. The government is more optimistic and believe in a value of 11.2% this year.