Investment in the housing segment is expected to be weaker in Portugal in the coming years, namely by 2026, predicts the Bank of Portugal (BoP).
The outlook is shared in the December economic bulletin, published on December 15, which states that the weakness of GFCF (Gross Fixed Capital Formation) in housing is likely to be more prolonged, since the deterioration of the GFCF is likely to continue; the deterioration in housing accessibility via credit reduces demand and creates expectations of moderation in sales prices, which penalizes profitability and investment in new construction.
The regulator estimates that investment in housing will go through two more difficult years of downturn or recession, namely 2023 and 2024, before recovering in 2025 and 2026.
This year, investment has been more constrained by higher interest rates and the stagnation of domestic and foreign activity. However, by 2026, the Bank of Portugal expects investment in Portugal to recover, and anticipates an improvement in the macro-financial context, as well as increased inflows of funds from the European Union.
In particular, the growth of the business component, should benefit from the recovery of global demand and growing investment needs in order to carry out the transition;digital and energy transition of production processes, in a context of the gradual fading of the effects of the tightening of monetary policy, it can also be read.
Economy expected to grow by 2.1% in 2023
The Bank of Portugal predicts that the Portuguese economy will grow by around 2.1% this year, 2023, and should slow down to 1.2% in 2024. A recovery should take place in 2025, to 2.2%, and 2% in 2026.
In the second and third quarters of this year, the Portuguese economy stagnated, and should maintain low growth in the final quarter of the year, according to the BoP. On the other hand, the rise in interest rates has a more rapid negative impact on the industrial sector, with services showing greater resilience.
In the coming year, quarterly growth will recover very gradually throughout 2024. The recovery will benefit from the acceleration of external demand, the impact of lower inflation on real household income despite the expected increase in real interest rates and the boost from European funds on investment.
The institution also predicts that inflation will continue on a downward path, with the annual change in the HICP falling from 5.3% in 2023 to 2.9% in 2024 and 2% between 2025 and 2026. Both indicators have been revised downwards compared to the October economic bulletin.