Portugal’s GDP set to grow but deficit remains the same

Portugal’s economy will grow more than expected between now and the end of the first half of 2022 but the annual budget deficit and accumulated deficit is set to remain persistently stubborn.

The Government is planning a State Budget 2022 on the premise that the economy will grow 5.5%, above the 4.9% estimated in April in the Stability Programme, but decided to maintain its target deficit figures for the period at 3.2% of GDP.
Given that greater growth in GDP should bring in more revenues for the State, the fact that the Minister of Finance, João Leão is sticking to his original deficit target of 3.2% of GDP in line with demands from its partners in parliament shows a certain prudence.
The numbers were released by the parties on Wednesday after meetings with the Government after its presentation of the macroeconomic situation which influences the State Budget of 2022.
Jõao Leão is working on a budget based on a GDP growth of 4.6% in 2021 and 5.5% in 2022, above previous estimates of 4% and 5.5% respectively, and a deficit of 4.5% of GDP in 2021 and 3.2% of GDP in 2022 which remains unaltered from previous projections.
Portugal’s budget balance is the difference between revenues and public expenditure and in theory greater economic growth should lead to an increase receipts (with more taxes being collected, for example) and a reduction in expenditure as employment increase and unemployment benefit falls.
However, the amount also depends on the budget impact of the new measures that the government will introduce in the State Budget which will depend on negotiations with partners in parliament given that the ruling PS party does not hold a majority.