Job creation is weakening and this “limits” the effect of wage increases on the evolution of the costs of the Portuguese economy, warns a new study by the European Commission.
In the winter forecasts released yesterday, Brussels maintained (compared to the fall, three months ago) the growth forecast for this year in Portugal at 1.7%.
However, this pace is two tenths below the hypothesis of economic expansion on which this year’s State Budget is based. In December, the Minister of Finance, Mário Centeno, entered a forecast in the order of 1.9% in 2020 for the growth of the gross domestic product (GDP).
The growth in 2019, which today INE will confirm in its first estimate, should have been 2%. Therefore, as Brussels now reiterates, Portugal should decelerate 0.3 percentage points this year.
These interim forecasts do not bring updates to the budget balance or to unemployment, but Brussels draws a picture of an economy with several weaknesses gaining ground. This can be seen in inflation, which in 2019 will have virtually stagnated at 0.3%.
Low inflation helps the purchasing power of wages and pensions, but it also reflects a squeeze in corporate margins.
“Inflation fell from 1.2% in 2018 to 0.3% in 2019, being significantly below the average for the euro zone”, begins by referring to the community executive. “This reflected the fall in energy prices, including fluctuations in oil prices, but also several regulatory changes that affected electricity bills.”
In addition, says the Commission, “inflation has been dampened by the prices of activities related to tourism, mainly accommodation” and also by “other regulatory restrictions on the prices of public transport, education and telecommunications”.
And more. In 2019, “house prices continued to grow at a high rate, of around 10%”, four times more than the growth in nominal wages per worker, which Brussels estimates was around “3% in 2019” .
The impact of this wage increase on inflation, on the cost level of the economy as a whole, “remained limited due to the slowdown in employment”. In fact, last year, employment grew by only 1%, the weakest record since the serious crisis in 2013, when it fell by 2.6%, according to recent official estimates by INE.
Economic Commissioner fears for health of industry and tourism
Yesterday, the European Commissioner for the Economy, in the presentation of the new forecasts, warned that we will have years of “tenuous growth” ahead of us and that in the case of the coronavirus “it is too early to assess the extent to which it will have a negative economic impact”.
But he left a serious warning to shipping: sectors like “manufacturing, tourism and travel” are the most vulnerable, depending on how long this problem lasts.
This profile of contamination to the real economy will directly affect an economy like Portugal, taking into account the growing importance of tourism in employment and activity in general, namely in the dynamics of construction and in the value of real estate. Which, says the European Commission, is already correcting the peaks of recent years.
IMF. New virus threatens more: China is worth double compared to 2003
Kristalina Georgieva, the new director-general of the International Monetary Fund (IMF), referred to the problem in another light. In 2003, when there was another Asian flu (SARS), China, which is the epicenter of the new coronavirus, it weighed just 8% in the world economy. Today it is more than double, about 19%, so the problem or threat is much more serious.
In addition, China has also become a leading economic partner of Portugal, with strong holdings in several major key companies and as a source of revenue, such as tourism, for example.
“China was different”, there was less in the world economy, and with that “the world was different”, said Georgieva.
Therefore, the new virus “clearly affects and touches economic activity more severely” and this is amplified by the fact that “the world economy is weaker today” than in 2003, warned the head of the IMF.