The impact of high inflation was felt among Portuguese families and private consumption contracted in the fourth quarter of last year, something that had not happened since the beginning of 2021, when Portugal was being hit by yet another wave of the pandemic. Even so, the other components of GDP helped to prevent the Portuguese economy from falling into recession.
The data detailing how the Portuguese economy evolved at the end of last year were released this Tuesday by the National Institute of Statistics (INE) in the second estimate of the national accounts for the fourth quarter of 2022.
The estimated values for the total change in GDP in this period were revised slightly upwards. At the beginning of February, in the quick estimate then presented, INE pointed to a chain growth of 0.2% in Portuguese GDP in the fourth quarter, a value now corrected to 0.3%. Likewise, the estimate for the year-on-year change in GDP in the fourth quarter changed from 3.1% to 3.2%.
These slight revisions did not, however, lead to any change in INE’s estimate for GDP growth for the year 2022 as a whole, which remained at 6.7%.
If in the quick estimate released a few weeks ago, the INE did not yet give details on how the various components of GDP behaved in the final months of last year, it is now possible to come to the conclusion that the slight growth achieved in that period took place in a scenario of a drop in what is the main component of GDP, household consumption.
In fact, according to data now published by INE, private consumption recorded, between the third and fourth quarters of 2022, a contraction of 0.5%. This is an unusual result for this indicator and which, in the last five years, it had only been possible to observe in the quarters in which the country was affected by the pandemic, with tight confinement measures that limited the capacity of families to consume.
It is necessary to go back seven quarters, until the first three months of 2021, to find another negative chain variation of private consumption in Portugal. At that time, this indicator was affected by the fact that strict confinement measures were once again enacted to face a new wave of the pandemic.
Now, what causes household consumption to contract is something completely different. After, throughout 2022, the Portuguese showed some capacity to increase their expenses, with private consumption growing by 1.4% in the first quarter and 0.7% and 1.1% in the second and third, respectively, in final phase of the year, the strong price increase that has been witnessed ended up weighing negatively on their consumption decisions.
With prices rising more than wages, savings accumulated during the pandemic running out and uncertainty about the future also weighing on, the Portuguese cut, not only in durable goods (-1%), but also in non-durable goods (-0.4%), with emphasis on the 2.3% drop registered in food goods.
Food goods, together with energy goods, have been those where the effect of rising inflation has been most felt.
Even so, despite this drop in private consumption, the Portuguese economy, which in the third quarter of the year had grown by 0.3%, managed to maintain the same pace in the fourth quarter. This was thanks to better investment performance and a more positive contribution from net exports.
Investment, which had registered worrying declines during the second and third quarters, returned in the last three months of 2022 to positive growth rates, with a chain variation of 2.2%. Investments in transport equipment, with an increase of 10%, and in construction, with an increase of 3.3%, were the main contributors to this performance.
On the external front, both exports and imports slowed down, in a scenario of reduced pace of economic activity both in Portugal and abroad. Even so, if in the third quarter imports had grown more than exports, in the fourth the opposite happened, with imports stagnating and exports increasing by 0.2%. This allowed the contribution of net exports (exports minus imports) to GDP growth to have slightly improved.
For the course of 2023, the evolution of private consumption, in a scenario where inflation is falling, although still at high levels, will be decisive to understand whether the Portuguese economy will be able to avoid a recession, as is currently predicted by the generality national and international institutions.