Portugal is the only EU country that will develop further in the midst of war. Miracle? Skill? Economists explain

The effects of the war, the return of tourism or the lifting of restrictions against covid-19 help to explain the situation. But experts warn of inflation

Portugal is the only country in the European Union that will increase more than expected in the years 2022 and 2023. The accounts are from the European Commission, which this Monday updated economic data Portuguese growth of 5.8% in 2022 (against 5.5% in the last forecast) and 2.6% in 2023 (against 2.5%). Only the Netherlands progress in 2022 in this comparison (the same three tenths as Portugal), but not in 2023; and only Ireland saw its forecast increase until 2023 (the same tenth as Portugal), but not in 2022.

How can these data be explained, at a time when the European Union is once again shaken by an economic crisis? After covid-19 came the war in ukraine.

Tourism, they say

The European Commission points to the return of foreign tourism as one of the main reasons for these figures, with a “strong recovery from a weak base”: in the last two years there has been a strong impact caused by the covid-19 pandemic, which has left countries heavily dependent on travel, such as Portugal, worse off.

Added to this is perhaps the fact that Portugal is one of the most peripheral countries in Europe, especially in relation to Ukraine, where the war is already in its third month. Farther from the battlefield, our country can convey a greater sense of security. Russia threatens NATO countries almost indiscriminately, but Portugal seems far from this radar, especially in the eyes of tourists, who will see Portugal as a safer country than the others, in addition to all the advantages it presents already in advance, such as the heat, the beach and lower prices than other European countries.

João Borges de Assunção, professor of economics at the Catholic University, told CNN Portugal that it is normal that this recovery is based on tourism, especially because “we were very late”.

“The effect of war can be beneficial. Mere physical distance can give a double benefit: distance and market share,” he adds, but emphasizing that this will not be the main reason why Portugal is the only country with a high revision.

Ricardo Ferraz agrees that tourism can be a key factor. The economics professor at Universidade Lusófona reminds CNN Portugal that this sector is “one of the main drivers of Portuguese economic activity”.

“It was tourism that helped Portugal in the financial recovery after the troika”, recalls the researcher also at the Instituto Superior de Economia e Gestão, pointing out the same similarity with the crisis caused by covid-19: “Tourism is recovering from the gap where I was”.

The president of the Order of Economists, António Mendonça, underlines with CNN Portugal that a “recovery after the fall of tourism” is in progress, arguing that the question of security will be something to see later: “But there there is an ongoing process of recovery going on,” he says.

“There is an optimistic forecast in relation to Portugal”, he underlines, speaking of “significant” values, but warning of a “framework of very great uncertainty”, in particular because of the effects of the war which may occur. indirectly, “in a chain”.

Confirmation of a trend (and subsequent recovery)

João Borges de Assunção affirms that this revaluation should have as one of the main factors a very strong growth in the first quarter, unlike what happened with other economies.

“This revision has mainly to do with the very solid data for the first quarter, which surprised everyone,” explains the economist.

The economist stresses that the most important thing is to understand the different data, but underlines the importance of the Portuguese fall in 2020 and the weak recovery in 2021. down 8.4%. Only Spain (10.8%) and Greece (9%) experienced deeper recessions.

On the other hand, Portugal was among those who recovered the least in 2021 (only 4.9%), well below many other countries, so the data now verified may be a sign of a subsequent recovery.

“In the fourth quarter [de 2021] we were far behind everyone. in the first trimester [de 2022] we stayed ahead. I think the European Commission is integrating the right data from the first quarter,” he underlines.

Ricardo Ferraz also points to the “strong growth at the start of the year” as one of the main reasons for this balance sheet. The professor from the University of Lusófona admits that the value of the first quarter, which “perhaps surprised the European Commission”, is a key indicator: “The first quarter was more positive, and this automatically leads to a revision of the value on the rise”.

But the university professor stresses the importance of a greater effort to make the recovery felt beyond 2023: “There is a nice recovery compared to the previous year. Tourism has been heavily penalized, but things have returned to normal and we will return to a normal value in 2023.”

“We’re only going to be in first place because we also fell a lot,” he concludes.

The president of the Order of Economists emphasizes that “it is quite natural to grow more when you lose more”.

The (less) energy dependence

João Borges de Assunção sees no explanation for this, in particular because, as he says, the prices are set generically for the European Union. Even so, he says, Portugal’s lower dependence on fossil fuels from Russia may imply greater stability compared to more dependent countries, such as the Czech Republic or Germany, for example.

Ricardo Ferraz, on the other hand, sees a possible relationship, pointing to a risk matrix presented by the European Commission, which shows the different risks of each country compared to Russia.

“Portugal is one of the countries with the least risk of exposure to Russia,” he says, noting that many countries have downward revisions, which may be precisely linked to a greater dependence on this regard.

António Mendonça points out that Portugal is less dependent on this factor compared to other economies: “Portugal, from this point of view, is a less dependent, more diversified country”.

The former Minister of Public Works also points to the small size of the country compared to, for example, Germany, so that industry also needs less energy from this source.

Covid-19 restrictions lasted until later

Another effect that could benefit Portugal is the lifting of some of the restrictive measures against covid-19. We were one of the last countries to liberalize the use of masks in various places, such as restaurants or shopping malls.

“Until the fourth quarter [de 2021] we were the country furthest behind in the recovery within the Eurozone”, recalls João Borges de Assunção, insisting that the data for the first quarter were much more positive compared to the pre-pandemic period.

Ricardo Ferraz says more data is needed to establish a clear relationship between the upward revision and the end of certain restrictions, but points out: “They seem to take into account that there will no longer be major problems with the pandemic, but we know the pandemic is getting worse again”.

This aggravation, says the professor of economics, “would cause this Portuguese recovery to fail”.

The danger of inflation

While economic forecasts have been revised upwards, so has inflation.

Portugal is expected to experience an estimated price increase of 4.4%, 2.1 percentage points higher than expected. Even remaining below the 6.1% forecast for the Euro Zone, these data indicate that the The Portuguese are expected to lose purchasing power this year.

Indeed, and according to the most recent data from the National Institute of Statistics, “the average gross monthly remuneration per worker increased by 2.2% to 1,258 euros in the first quarter of 2022”, but, in real terms, “decreased by 2%”.

What is at stake is the confrontation between increases in nominal wages and the evolution of real incomes, ie the updating of inflation. And inflation has risen more than incomes, so on average the Portuguese have lost purchasing power in the first three months of this year.

The European Commission expects inflation in Portugal to peak in the second quarter of this year and gradually moderate thereafter.

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