Portugal: Economic growth rises marginally in fourth quarter of 2018
Detailed national accounts data, released by the Statistical Institute on 28 February, confirmed that the economy picked up slightly in the final quarter of 2018. Matching the flash estimate, GDP grew 0.4% over the previous quarter in Q4, marginally up from a 0.3% quarter-on-quarter expansion in Q3. Economic growth, however, lost pace in annual terms, with GDP expanding 1.7% in Q4 compared to 2.1% in Q3. Moreover, the economy lost ground last year, with full-year GDP growth declining to 2.1% in 2018 from 2.8% in 2017.
An improvement in the external sector led the slight pick-up in growth in the fourth quarter, countering the deceleration in domestic demand. Exports grew 1.1% in Q4, contrasting a 3.7% contraction in the previous quarter. Imports, meanwhile, accelerated, expanding at a swifter pace than exports (Q4: +1.9% qoq; Q3: -2.0% qoq). Consequently, the external sector deducted from growth, although less sharply than in the previous quarter (Q4: -0.5 percentage points; Q3: -0.7 percentage points).
Meanwhile, a breakdown by expenditure showed that domestic demand decelerated, expanding 0.8% in the fourth quarter following the 1.0% expansion in the third quarter. A contraction in fixed investment, which fell 0.7% in Q4, contrasting a 0.9% expansion in Q3, led the slowdown. Specifically, weaker business confidence—amid fears of a persistent slowdown in the Eurozone—likely caused the decline. The sharp downturn in fixed investment more than offset upturns in private and public consumption. Household consumption accelerated as declining inflationary pressures boosted households’ purchasing power (Q4: +1.2% quarter-on-quarter; Q3: +0.7% qoq). Government spending also rose in the quarter, rising 0.3% in the final quarter following a flat reading in Q3.
Looking ahead, momentum is expected to wane again in 2019. A less dynamic tourism sector and a weaker export performance, amid a more challenging external terrain, are seen dragging on growth.