September 17, 2021
The figures were the following:
1 – Economic Activity Coincident Indicator: +2.7%YoY, vs. 12MMA: -1.70% and 3MMA: 2.50%;
2 - Private Consumption Coincident Indicator: +7.1%YoY, vs. 12MMA: 0.6% and 3MMA: +6.6%.
August figures were again quite strong and above moving averages (important to highlight data is frequently revised). In historical terms, Private consumption is growing at record levels never seen (at least since the data is collected, January 1978), while Economic Activity is also improving but at a slower pace. As we said before, this kind of growth, strongly supported on domestic demand tends to generate strong performance on fiscal terms as Imports pay VAT, however, usually, tends to increase the external deficit and so not sustainable. The marginal increase is slowing down and so consumers could calm down in the coming quarters, even that the EU funds if concentrated in a short period of time, namely the bulk in the next two years (forthcoming elections Sept/Oct 2023), could keep the strong momentum on domestic demand and pressure on services prices.
Summing up, August data confirms a strong momentum in the Portuguese economy, namely in domestic demand, growing at record levels, which should be beneficial in terms of fiscal execution however not so positive regarding the external figures. The UE funds, if concentrated in the coming two years and not offset by less accommodative fiscal and monetary policies, could be enough to keep the positive momentum in the domestic demand and pressure upwards service prices; so positive for consumer sectors, namely retail, telecommunications.
Source: BoP, AS Independent Research
António Seladas, CFA
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