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March 27, 2019

Euro Area Economic Outlook

Comprehensive data confirmed that the economy stuttered again in Q4 2018, with growth barely picking up after the Q3’s weak performance. Downbeat sentiment, troubles in the manufacturing sector and the unwinding of inventories weighed on the domestic economy. While the economic backdrop remains somber in 2019—with heightened uncertainty over Brexit and tariffs on the automobile industry—recent signs have emerged of a tentative stabilization. Retail sales jumped in January and the unemployment rate held at a multi-year low, boding well for household spending. Low oil prices, meanwhile, should keep inflation and the import bill in check. Furthermore, although economic sentiment continued to fall in February, the pace of decline moderated significantly. That said, the manufacturing PMI slumped in March, suggesting that the sector is still reeling from a slowing global economy and a bruised car sector.    

The Eurozone’s growth outlook was cut for a fifth consecutive month on the back of a disappointing 2018 and ongoing woes in the manufacturing sector. Risks to activity linger from automobile tariffs, political uncertainty and sluggish global demand. Nevertheless, a tightening labor market, contained inflation and accommodative monetary policy should provide some relief.
 

Portugal Economic Outlook

Detailed national accounts data for Q4 2018 confirmed a slight acceleration at year-end, as a rebound in exports lessened the external sector’s drag on growth. Available indicators hint at a loss of traction going into 2019, although growth likely remained healthy. The current account deficit widened in January on a fall in exports, offsetting the impact of higher remittances, while the industrial sector contracted more sharply in the month. Moreover, while retail sales accelerated in January, consumer confidence tumbled to an over two-year low in February, signaling downbeat prospects for household spending. On the upside, S&P Global Ratings upgraded Portugal’s credit rating by a notch to BBB on 15 March, citing improving debt dynamics and balanced growth. The news lifted investors’ appetite for the country’s sovereign debt, hurling the 10-year bond yield close to historic lows.

Portugal Economic Growth

The economy is set to cool this year, owing to a less dynamic external sector and softer domestic demand. Exports are expected to slow amid choppier waters in the global economy, and tourism activity will also likely moderate. Moreover, private consumption and fixed investment are expected to weaken on tighter credit availability, as less favorable economic conditions weigh on consumer confidence and business sentiment. Focus Economics analysts expect growth of 1.7% in 2019, which is unchanged from last month’s forecast, and 1.5% in 2020.

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