IMF warns of “vulnerabilities” in Portuguese real estate market

The International Monetary Fund has advised Portugal that financial policies should continue to concentrate on systemic risks which it says have increased because of more restrictive financial conditions and increased vulnerabilities in the real estate market.

The IMF restated its forecast of 2.6% for Portugal’s GDP for 2023 but predicts that the economy’s growth will be below the government’s forecasts of 2% for 2024, predicting instead a more modest 1.8%.
“The banks and the supervisory authorities should continue to be vigilant as to the quality of credit, market risk, interest rates and capital management. The continued improvement in capital margins should serve as an important safeguard. Efforts should be made to contain the risk of transnational capital laundering,” it explained.
The IMF also argues that to counter “the accumulation of vulnerabilities in the residential real estate sector in Portugal, the authorities should gradually introduce a sector capital reserve for systemic risk”.
“Such a measure should be calibrated in a holistic way taking into account other macro-prudential measures, the cost of complying with required resolution and avoiding pro-cyclical effects. Great support for increasing housing offer at affordable prices, without distorting the market, would also alleviate tensions in the real estate market,” it suggests.
According to the IMF, maintaining a tight budgetary policy in 2023 is appropriate to create budgetary room and supporting monetary policy in reducing inflationary pressures should be one of the priorities, while recommending only temporary support “without distorting prices and directed to more vulnerable family groups”.
“Structural policies should continue to be centred on increasing productivity growth”, says the IMF.