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The Competitiveness Forum says political uncertainty will impact the Portuguese economy

The Competitiveness Forum says political uncertainty will impact the Portuguese economy

It is certain that the new government will approve a revised budget for 2024, with changes that could be significant, especially with regard to taxes. Before this aspect is clarified, many investment decisions would prefer to wait, the forum warns.

The Competitiveness Forum has released the Economic Note for November 2023. The probability of a technical recession in the second half of 2023 has receded, but growth in 2024 is expected to be modest, with a weak external environment and with domestic political uncertainty leading to postponement. Some expenditures are consumption and investment.

Once again, the IMF expressed its appreciation for the need to maintain fiscal health. “A government less committed to controlling public debt may emerge from the next elections, but it is important that the parties define their position on this issue and that the validity of the public accounts is assessed,” the foundation led by Pedro Ferraz da Costa revealed.

The Forum believes that the current political crisis should have an impact on the Portuguese economy in three ways: through general uncertainty; Because we are likely to have a management government in the next six months; And uncertainty about the final release of OE24.

Opinion polls for the March elections indicate a technical tie between the Socialist Party and the Social Democratic Party. And the difficulty of forming a stable majority, as the forum expected.

The general uncertainty will hold back consumers and investors, waiting for the political scenario to clarify, and consumption of durable goods and some investments may be put on hold.

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A government in administration has had its powers reduced, so there will be certain files that will remain suspended, just like the new airport. On other issues, such as persistent poverty and housing, this could slow commitment to results, the Competitiveness Forum predicts.

On the other hand, it is certain that the new government will approve a revised budget for 2024, with changes that may be significant, especially with regard to taxes. Before this aspect is clarified, many investment decisions prefer to wait.

Internationally, the door is opening for a potentially faster fall in interest rates in 2024, but the European Central Bank is very reluctant to accept this idea, so the catalysts that could result from this should be slow to appear, according to the forum’s analysis. Economists.

In the quarter ending October, the rise in mortgage repayments accelerated from 38.0% to 41.3%, the highest growth since 2009 (the beginning of the INE series) while the interest rate averaged 4.43%, the maximum since March 2009. However, it is worth Pointing out that the year-on-year subsidy growth rate declined slightly, from September (41.9%) to October (40.5%), it reveals.

In short, we have a weak external environment, domestic political uncertainties, and difficulties regarding exports of goods and services that need to be monitored in the coming months. Therefore, 2024 should be a year of growth clearly below the economy’s potential.

In a context that affects the economy, the forum highlights the conflict between Israel and Hamas. This is what he calls “one of the major risks facing the global economy, but so far it has had no impact on energy prices (the main channel of infection), which fell in October and November.”

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Positive economic data in North America has the market anticipating four cuts in benchmark interest rates in 2024.

For its part, the Forum highlights that the European Commission’s new forecasts are slightly more pessimistic than those presented in September, with no technical recession expected in the second half of 2023 in most Member States.

“The forecasts for Portugal have been revised downward, meaning that in 2024 it should grow in line with the EU and in 2025 above that by only a tenth, i.e. without any convergence worthy of the name,” the note highlights.

In Portugal, regarding the elections scheduled for next March 10, the forum says that it will monitor the opinion polls that will be published until then.

“The first aspect that should be highlighted is the decline in the weight of the two largest parties, which ranged between 78% in 2002 and 64% in 2019 (70% in 2022), and is now close to 50%. Second, there is a technical bond between the Socialist Party and the Social Democratic Party, despite the wear and tear of eight years of the former’s rule and the circumstances in which the Prime Minister’s resignation occurred.

The forum states that Chiga doubles voting intentions and can triple the number of representatives, making it the inevitable party to form the next government, but everyone seems to be avoiding it.