The recovery was driven by strong domestic demand and a strong improvement in tourism from the second half of 2021, aided by one of the world’s highest vaccination rates. Given the policy support to sustain employment and income growth and to maintain financial stability, Portugal had in 2022 a strong start but the year growth is expected to moderate in quarterly terms but, in anyway, it remains significant in annualized terms in 2022. Which are the keys of such performance? First, exports of services are projected to contribute most to growth, reflecting an exceptional expansion of 75% year to year, in the first quarter of 2022. This was clearly supported by the recovery of the tourism sector. Latest data suggest a continued strong performance in tourism with international flights and foreign tourist visits nearly reaching their pre-pandemic level in the second quarter of 2022.
Portugal has been generally less affected by the economic repercussions of the war in Ukraine than other European economies. Given that Russia indeed represents a very limited share of energy imports, around 5% against a quarter on average within the European Union, the energy supply is less disturbed. The GDP recorded a solid growth in Q1 2022 of 2.7% q/q, following the rebound which take place during 2021. In addition, unemployment rate has also dropped below 6% for the first time in 20 years.
However, Portuguese economy is not alien to inflation trends. Inflation rose substantially to 8.2% (y-o-y) in the second quarter of 2022, driven by a steep increase in the prices of energy and food products. Prices of services also increased reflecting a wide range of factors, including effects from energy to transport services as well as large base effects for the prices of accommodation and air transport. Considering the current high energy prices, inflation is projected to moderate only marginally in the second half of 2022. A more substantial moderation is expected in 2023. Overall, inflation is projected at 6.8% in 2022 and 3.6% in 2023. Core inflation is set to remain below the headline rate until the end of 2022. Wage adjustment pressures in the context of record high employment in Portugal are then expected to move core inflation slightly above the headline rate in 2023.
However, it is worth to recall the reaction from the government: it has put in place a tariff “shield” on electricity prices. This shield should ease the situation triggered by the rise in energy prices. Growth is forecast to remain strong at 6.5% in 2022, reflecting the accumulated carry-over and the continued rebound in tourism. Growth is then projected to moderate to 1.9% in 2023.
As for the Real Estate market, Portugal had a record increase in home prices due to strong demand and a housing shortage. The market is in high demand from local and international investors; as it is occurring in other markets, real estate supplies are historically low levels, which has put pressure on prices.
To conclude Real estate market in Portugal is not expensive compared to other European capitals; it has seen a period of steady growth, which keeps it as an excellent place to invest