GDP. Risks threaten goals

Although the Portuguese economy grew in the first three months of the year, the increase was below what was expected and below the last quarter of last year. This behavior does not surprise the economists interviewed by Nascer do SOL, who also point to many uncertainties regarding the future.

According to data from the National Statistics Institute (INE), the Portuguese economy grew 1.6% year-on-year in the first three months of the year, after growth of 2.8% in the previous quarter, and contracted 0.5% compared to the previous quarter, after growth of 1.4% in the previous quarter.

These figures led the Finance Minister himself to acknowledge that the national economy should be growing by 3%. Even so, Joaquim Miranda Sarmento said that this drop should not come as a surprise and recalled that, excluding the first quarters of 2020 and 2022, periods of the Covid-19 pandemic and lockdowns, since Portugal entered the eurozone the national economy has never “grown as much as in the fourth quarter of 2024”, “and now it is, in a way, stabilising within its medium and long-term perspective”.

Speaking to our newspaper, João César das Neves admits that this slowdown “is not a good sign”, but says that this behavior is “certainly linked to the difficulties of the global economy. But it is still too early to be sure of what it means”.

Regarding the 3% target, he acknowledges that this should be the objective, but recalls that “for this to happen there would have to be profound changes, which are not visible”.

António Nogueira Leite also draws attention to the fact that, from a year-on-year perspective, we have seen growth of 1.3%, which he believes is a “reasonable” figure. In relation to the last quarter, compared to the last three months of 2024, he says that we have seen a decline, but he notes that “the last quarter of 2024 was exceptional because there was a large increase in output driven by a large increase in consumption”.

And the economist points to several factors that led to this increase in consumption: «In large part because a substantial part of the population saw their income increase as a result of the government's budgetary policy. The government gave more money to teachers, it gave more money to retirees, it gave more money to a lot of people. Almost at the same time, the government began to finance itself less with taxpayers, which meant that they started to receive more up front, instead of receiving it at the end. All of this had a major impact on people's disposable income, which led to an increase in consumption and which led to an increase in national income during that period that was not followed immediately, nor was it expected to be», he explains to Nascer do SOL, also mentioning that «the most important thing is the difference compared to the previous year, since it seems relatively robust».

Uncertainties jeopardize the future Nogueira Leite admits that the growth recorded is “a little below” what the Government expected. It should be noted that the Executive estimated growth of 2.1% this year in the State Budget for 2025. The AD predicts, in the macroeconomic scenario included in the electoral program, that GDP will grow by 2.4%.

But the economist is more apprehensive about what will happen by the end of the year. “At the moment, no one knows because we are in a geostrategic, political and military context around the world that has many risks. In addition, we have the issue of President Trump’s tariffs, which have become more visible at the beginning of the year. We still don’t know how they will happen, what their scale will be, because everything is under negotiation.”

He adds: “I don’t think the government’s scenario is impossible, but my scenario is a little less optimistic. I estimate that this year we will have growth of somewhere between 1.5 and 2%. The world is much more difficult than it has been in recent years. Germany, which is one of the driving forces of Europe, has problems, France, which is a very important economy in Europe, has a huge budgetary problem. The RRP [Recovery and Resilience Plan] is still in effect, but at some point this effect will disappear, at least further down the line.”

This means that, according to the economist, all scenarios in terms of economic prospects are open. “Depending on the tariff war and the evolution of several European economies, we could come close to the Government’s projections or fall short.”

César das Neves also has no hesitation regarding the future: “Nobody knows. The situation is terribly uncertain, but the dominant signs are negative.”

As for the impact of the Portuguese elections and these last few weeks of impasse, Nogueira Leite downplays the situation. “As long as they don’t do anything stupid, I’m not worried. And since we’re not going to have a government on the far left, I think the probability of them making many mistakes is lower. We’re also not sure if we’re going to make the necessary reforms. Now, what worries me most this year is the international situation because it has a high level of risk.”

National economy may suffer a setback These concerns are also echoed by Eugénio Rosa, who points out that, on the import side, European retaliatory tariffs may affect sensitive sectors of the Portuguese economy. «In particular, the food chain may be impacted by possible restrictions or price increases on agri-food products from the US – such as soybeans and corn – which are used in animal feed. This could lead to increases in agricultural and livestock production costs, with an impact on consumer prices for meat, eggs and dairy products. This pressure on food prices, in an already inflationary context, represents an increased threat to the purchasing power of Portuguese families, especially those with lower incomes», he highlights to our newspaper.

On the other hand, the economist points out that the US protectionist policy is causing a general slowdown in the global economy, by reducing international trade and halting investment. “This slowdown is resulting in a decrease in global demand, which is already having consequences on the prices of various commodities, such as industrial metals and agricultural products. The most visible case is that of oil, whose price per barrel has been falling – OPEC has already announced a reduction in production to counter this trend – and is also being reflected in fuel prices, both in the US and in Europe. Although this drop may alleviate the Portuguese energy bill in the short term, it also signals deeper risks for global economic activity”, he says.

These risks, according to Eugénio Rosa, will have “significant repercussions on the growth of the Portuguese economy in 2025, which could suffer a drop of between 0.5% and 1% of GDP, compared to the forecasts made by official entities prior to the trade crisis. This slowdown is the result not only of the decline in exports, but also of the fall in business investment, the slowdown in private consumption and widespread uncertainty in the markets”. He argues that, given this scenario and the high external exposure of the Portuguese economy, “strategic mitigation measures and the strengthening of internal resilience” are required.

What is at stake According to data from the National Statistics Institute (INE), Gross Domestic Product (GDP), in volume, recorded a year-on-year change of 1.6% in the first quarter of 2025, after growth of 2.8% in the previous quarter. The positive contribution of domestic demand to the year-on-year change in GDP decreased in the first three months of the year, as a result of the slowdown in private consumption. The negative contribution of net external demand to the year-on-year change in GDP «was more pronounced», reflecting the slowdown in exports of goods and services.

In turn, the contribution of net external demand to the quarter-on-quarter change in GDP was negative, while domestic demand recorded a null contribution, after having been positive in the previous quarter.

US response Also on Wednesday, the US Federal Reserve (Fed) kept interest rates unchanged for the third meeting in a row. The Federal Reserve, led by Jerome Powell, said it was “in no rush” to act at a time of high uncertainty, despite acknowledging that the tariffs imposed by Donald Trump could lead to higher inflation, a slowdown in economic growth and an increase in unemployment.

Still, Powell admitted that governors want to “wait and see” what will come of negotiations with various countries on tariffs to understand how they should act. “We are comfortable with our policy stance, we don’t feel we have to rush, when things develop we can move quickly,” adding that, although it is certain that they will have an impact, its duration is still uncertain. “The effects on inflation could be short-lived, reflecting a one-off change in the price level, but it is also possible that the inflationary effects will be more persistent,” he said.

Regarding the data that showed a contraction in the US economy in the first quarter, the Fed chairman pointed out that the anticipation of imports affected the indicators, but that the signs of economic activity remain positive. “It is still a healthy economy,” he concluded.