Now that the third quarter accounts of all the 27 countries have come to light, Eurostat reveals that one country is already in technical recession, Estonia, and eight are on the brink of a recessive scenario. Greece, Slovenia and Latvia are the most fragile cases. Germany managed to keep above line until September, but the forecasts for 2023 point to a plummet of the largest economy of the European Union (EU).
Yesterday, in its highlight on national accounts, now complete and covering all the Member States, Eurostat showed that from the onset of the war up to the end of the third quarter, the growth of the Portuguese economy was drenched with the largest bucket of cold water in the EU group of 27 countries.
Portugal was already leading this ranking a month ago, but at that time, Eurostat’s preliminary estimate only considered ten countries.
Now, with all 27 ascertained, Portugal confirms its leadership in the group of fastest erosion of growth.
The shock on growth may be the strongest, but Portugal is not even in stagnation, let alone recession.
However, there are cases in Europe where the crisis has already actually or almost taken the shape of recession. Eight EU countries are on the brink of recession (economic contraction in the third quarter and Estonia has already actually entered into technical recession, which is when the economy contracts for two quarters consecutively.
In the first quarter, therefore, essentially before the outbreak of the Russian war against Ukraine, Portugal had grown an impressive 12% in relation to the first three months of 2021, reflecting an enormous baseline effect caused by the pandemic.
In the first quarter of last year, the economy had been brought to its knees due to the successive lockdowns curbing activity and the movement of people, decreed to fight against the pandemic. And the country experienced the most devastating times in terms of deaths and hospitalisation triggered by Covid.
In the meantime, this year, tourism, construction, trade, services in general showed signs of recovery, which were soon overshadowed by the energy crisis and extremely high inflation (at a level unprecedented since the euro’s creation).
At first, the inflation actually generated a significant rise in the turnover of many companies (and likewise, in government tax revenue and social security contributions), but signs are beginning to suggest Portugal’s arrival at the entrance of a tunnel of growing difficulties, where uncertainty clouds any vision of where this may end.
In Portugal, bitter figures are already hitting the headlines. The crisis is being reflected in more unemployment, less employment, less business, less production. But tourism still appears to be an unwaveringly resilient sector.
Portugal’s economy grew by 4.9% in the third quarter, above the European average (2.5%), indeed, one of the highest rates of the EU. But, as noted above, the decline was subsequently enormous, more than seven percentage points in year-on-year growth.
Quarter-on-quarter growth of Portuguese real gross domestic product (GDP) reached 0.4%, demonstrating that, despite the bucket of freezing water, the economy managed to hold up until September (largely driven by the glowing tourist summer), but casting a glance further afield, the scenario has started to become worrying.
Eurostat indicates that Belgium, Spain, France and Austria are on the verge of stagnation (having grown by merely 0.2% in the third quarter).
The Czech Republic, Netherlands, Finland, Croatia, Hungary, Greece, Slovenia and Latvia are halfway towards a recession (as their economies fell in the third quarter).
Estonia is the first EU Member State to officially enter into recession.
For 2023, the prognosis of the central scenario (not very severe) of the European Commission (EC) suggests that everything will worsen before improving in 2024.
And here too, the EC has recently said that the largest bucket of water is thrown on Portugal’s economic growth, with the annual rate for 2023 forecast at only 0.7%.
Nevertheless, more difficult and even threatening cases are looming. Sweden should experience a recession of 0.6% next year, while Latvia has already contracted by 0.3%.
But it is Germany, the EU’s largest economy and one of Portugal’s most significant trading partners, that will most contribute to the European economy’s deterioration. The Commission forecasts a retraction of 0.6% in 2023. The International Monetary Fund (IMF) states that Italy may follow in its footsteps.
The waning of strength in this championship of growth
Returning to Portugal. As described above, the panorama is increasingly gloomy. The most recent official indicators, which include the beginning of the fourth quarter of this year, are almost all adverse.
The Portuguese National Statistics Institute (INE) stated that “Retail turnover has slowed down, having fallen from year-on-year growth of 2.3% in September to 0.5% in October 2022, especially due to the reduction of trade in food products”.
In industry, a sector representing the hard core of the economy which can be useful in forecasting just how negative and long the tempest which is building up may be, the signs are also extremely serious.
Industrial production recorded “a year-on-year variation of -2% in October (0.3% in September)” and “excluding the energy cluster, the variation was -2.4% (1.5% in the previous month)”.
In the segment of manufacturing industries, the most important in the secondary sector and a heavyweight of exports, the INE already detects a strong decline in turnover. Here, production dropped by 1.9% in October. Yet, it had been growing by 1.2% in September.
Yesterday, the Association of Civil Construction and Public Works Industries (AICCOPN) highlighted the “strong resilience” shown by the sector, but ominous signs are mounting.
“According to the [INE] quarterly national accounts, in the first nine months of 2022, this sector’s GDP increased by 8%, year-on-year”.
Furthermore, this business association laments that the Construction sector’s investment and gross added value grew by only “0.8% and 1.1%, respectively”, in a period of “enormous uncertainty, marked by an accelerated increase of inflation, due to the rising interest rates and delayed launch of the planned public works”.
Source: Diário de notícias
