The prime minister has long been known for his optimism, having even been described as an “irritating optimist”. The author of this comment, the President of the Republic, wanted to position himself in this spectrum of expectations regarding the future, saying that it is, in turn, “very realistic”. From this perspective, Marcelo Rebelo de Sousa, who completes seven years in the Presidency of the Republic of Portugal this Thursday, has already advanced with several warnings, pointing out alerts such as unemployment figures, the implementation of the Recovery and Resilience Plan or the need to new social supports.
“You know how I am: I don’t belong to either the pessimists or the bubbly optimists and, therefore, I like to be in a very serene and very realistic and intermediate position”, Marcelo told journalists last Wednesday, while he was preparing to launch a set of notices. The fact is that some indicators show warning signs, as the economists interviewed by the ECO admit, but there are also positive numbers, so you have to see who the future will prove right: the optimists, the realists or the pessimists.
The National Institute of Statistics (INE) revealed last week that the unemployment rate in Portugal increased for the third consecutive month in January, settling at 7.1%. The President of the Republic reacted to these figures by pointing out that the rise in the unemployment rate is a “warning signal”.
Marcelo Rebelo de Sousa signaled that “international developments are slow”, which ends up “having effects” also on the Portuguese economy, in a “period of still low activity”.
“The war continues, inflation in many countries remains high, (it is a sign) that the international economy has not recovered, even great European powers like Germany are recovering slowly”, stressed the President of the Republic, pointing out that “as it is a open world that has effects” also here.
Marcelo also admitted that the rise in unemployment occurs “in some sectors, in a period of still low activity”, but pointed out that there are areas such as tourism that will still increase the level of activity.
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Economic growth is uncertain
On the same day, the President also warned that “the exit from the period of crisis that comes from the past, which the pandemic and the war aggravated, may take a little longer than expected”, even due to the effects of the slower recovery of the economy international, which ends up infecting the Portuguese.
Despite pointing the growth of the Portuguese economy of 6.7% in 2022 as “good news”, the Head of State admitted: “We already know that in 2023 such growth is not possible”. “Now let’s see how the economy will evolve,” he said, defending a “realistic” position.
Faced with the possibility of even weaker growth than expected, Marcelo Rebelo de Sousa warned of the need for new social aid. The President considered that if the economic situation gives “signs that are not as positive as expected” the Government may have to consider “complementary social aid” in the coming months.
“I think that if this evolution abroad is one that may, by chance, happen against forecasts, which were optimistic, and if these signs persist, which are not as positive as expected, it may force the Government to have to carry out a reassessment of complementary social aid, if necessary within a month, two months, three months”, said Marcelo Rebelo de Sousa, pointing out that “the Government will consider this”.
The President of the Republic reiterated that “the war is lasting and will last, inflation is falling less quickly than he would have liked” and “the news arriving, for example, from Germany, is not very good”.
This is already an alert that has been repeated over the past year. The President of the Republic continues to press for the acceleration of the execution of the Recovery and Resilience Plan (PRR) funds, having already left a warning to the responsible guardianship that he would not forgive if this opportunity was lost.
“The funds are contractualized in general, a good part of the money that has already been received by Portugal has reached intermediate recipients, but has not reached the final recipients”, underlined Marcelo Rebelo de Sousa. “In between there are entities that receive these funds, there are tenders, there is contracting and execution”, he added, stressing that the final recipients reached 1,474 million, a volume almost four times lower than that reached the intermediate recipients. “That’s where the fundamental issue of acceleration lies,” he concluded.
“The Government is the first to realize — and I hope that the opposition too — that it is an opportunity that cannot be missed”. For Marcelo, it is not just a question of executing all the funds, but also “not letting the effects of the bazooka slip over time”. The effects are “to inject into the Portuguese economy, in addition to leaving work, around 1,500 or 2,000 million euros per year or less”. “It is not indifferent for the growth of the economy and for the life of the Portuguese”, added the Head of State.
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There is no money for all the teachers’ claims
After the start of the third round of negotiations between the Ministry of Education and the trade unions in the sector, the President of the Republic defended that it was necessary to continue negotiating, but warned that the Government “does not have the money” for everything the teachers want.
“I want the dialogue to continue. Not so that a perfect conclusion can be reached – which is difficult –, but so that it pleases the greatest number of points and the greatest number of interested parties”, signaled Marcelo. Unions have many proposals, but “the talent is in finding a middle way”, he said. “It is not doing everything that the unions want because the Government says it has no money”, argued Marcelo Rebelo de Sousa.
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Housing package must see to know
The President of the Republic was reticent about the package of measures to combat the crisis in the housing sector, presented by the Government, comparing it to a melon. “People use to say ‘you only know if the melon is good after opening it’. You have to open the melon”, warned Marcelo Rebelo de Sousa.
The Head of State recognizes that it is necessary to understand the costs of the measures for the State, how many families will be covered by the proposals, what their effects will be and how long they will take to produce those same effects.
“The question is how these goals will be achieved. First, if they are hit quickly; second, whether they are achieved in a way that really improves the situation of so many families; third, if there is a machine to put them on their feet (at the level of the State and municipalities), if the bank is sensitive to certain changes that it has to introduce and if the taxes to be reduced will effectively change the situation of the Portuguese”, he explained.
Unemployment and inflation are indicators that show warning signs
Unemployment has been rising and alarms are starting to sound, although it has not yet reached a worrying level, signal the economists heard by the ECO. Inflation, on the other hand, has been slowing down, but it hides the rise in food prices, which are still on an upward trend. On the other hand, developments in retail sales and industrial production were positive.
Faced with a drop in energy prices, the beginning of 2023 was marked by optimism for having managed to avoid a recession in the Eurozone. However, “the economic situation is very fluid and nobody can foresee things clearly”, signals João César das Neves. “The optimism at the beginning of the year was merely relative: things looked less bad than predicted in the worrying signs”, which shows that uncertainty remains, notes the economist.
Pedro Braz Teixeira, director of the studies office at the Forum for Competitiveness, highlights unemployment as one of the economic indicators that are showing warning signs. The “estimate of the natural rate of unemployment, considered at full employment, is situated in Portugal between 6 and 7%”, so that when registering a rate of 7.1% “we are already out of the full employment zone”.
Source: INE
“A tenth is still not something to face with immense concern”, he points out, but “we had a lot of time at full employment and now we are leaving”, so “it is a warning sign”.
Economist Pedro Brinca also points out that among the economic indicators that reflect the reality of the economy, the rise in unemployment shows a degradation. “It is not yet at a high level, but the growth trajectory is consistent with the perception of economic slowdown”, he notes.
In the weekly note from the Economic and Financial Studies Area of BPI (BPI Research) it is indicated that the reading of the unemployment data “seems to indicate that previously discouraged individuals continue to have an interest in entering the labor market, which is reflected, for example, in the minimum value recorded in the inactive population in January”. However, they also point out that “the risks are skewed in a negative direction, so the negative reading of unemployment should be seen as a warning”.
Pedro Braz Teixeira also points out as worrying “what happened to private consumption in the fourth quarter of 2022: a drop in all its components, in particular in food products”. This indicator shows that “consumers are really feeling the difficulties of the economic situation and in the fourth quarter they received two aid packages from the State”, he stresses.
It is a “warning signal because the Portuguese are cutting spending and it is a sign that there are concerns”, he notes. The economist also points out that “the forecasted growth for this year is half of the average of the potential, 2023 is forecasted to be a weak year so there will always be signs of some economic weakness”.
This emphasis on food products can also be verified by inflation. “Total inflation has slowed down, but underlying inflation has not stopped rising”, points out Pedro Brinca. This happens because the “total dropped a lot at the expense of falling electricity prices”, but underlying inflation, which excludes the most volatile components such as energy, “is still rising”.
Source: INE
The Nova SBE economist adds that in the US it was also observed that generalized inflation began to fall first and only in October did the underlying inflation begin to fall, while “in Europe it reached its peak in November, so if the same level of lag only follows come down in March”.
Pedro Braz Teixeira also points out that even with the slowdown, inflation is still at high levels and “no institution predicted that inflation in 2023 would reach 7%”. “The January rate is not the same as for the year, but in January we are exceeding what would be the average for the year: it is a warning”, he warns.
Pedro Brinca also highlights indicators related to home loans, in light of the increase in Euribor. There is an increase in the weight of renegotiations of housing contracts in the last quarter of 2022, which may suggest the “degradation of the economic conditions of people with housing loans who are covered by the new rules that encourage renegotiation”, he indicates. It can also be seen, in the data of the Bank of Portugal, that “loans are amortizing more”.
The rise in interest rates is thus affecting the demand for home loans. Let’s look at this scenario: “a couple a year ago, in February 2022, managed to put €900 aside every month, with the 6-month Euribor in force at the time, with a 30-year loan they managed to buy a house of 300 thousand euros”. “Right now, the same couple with 900 euros can only buy a house for 180,000 euros”, he exemplifies, which shows a “39% contraction in willingness to pay”.
Source: Bank of Portugal
Despite these warning signs, both economists point out that retail sales data were strong and industrial production also recovered, and for now confidence also seems to be recovering.
