OE2022: Economists point to budget surplus in first quarter

According to economists consulted by Lusa, the first quarter of the year could be marked by a slight budget surplus, reflecting an improvement in economic activity and a decline in spending ahead of the pandemic.

The National Statistical Institute will announce this Friday the budget balance for the first quarter of this year, after a deficit of 2.8% of the Gross Domestic Product (GDP) in 2021 and with the government a deficit of 1.9% for forecast throughout the year.

‘A small budget surplus is expected in the first three months of the year’says Paulo Rosa, senior economist at Banco Carregosa, noting that “the improvement in public accounts was largely determined by the more favorable evolution of the pandemic”.

Pedro Braz Teixeira, director of the study bureau of the Forum for Competitiveness, also estimates “a positive balance, between 0% and 0.5% of GDP” in the first quarter of the year.

The economist justifies that in terms of public accounting “a surplus of 672 million euros (0.3% of GDP) was recorded, benefiting from an (simultaneous) increase of 18.4% in tax revenues and a decrease of 1.0% in current expenditure”.

“Usually there is significant seasonality in public accounts, but the pandemic and the war have brought major disruptions to this pattern, complicating semi-annual forecasts. Hence the forecast interval,” give note.

Paulo Rosa points out that “the evolution of government accounts in the first quarter of 2022 should reflect a resilient labor market and an improvement in economic activity, supported by robust GDP growth of 2.6% in the first three months of the year, a scenario that will have enabled an increase in revenue”.

For the economist at Banco Carregosa, cutting costs associated with the pandemic should also help improve public spending.

“The substantial easing of restrictions imposed by the Covid-19 pandemic and the fall in costs in the first quarter of the year explain the evolution of public accounts in the first three months of the year”notes, noting that the easing of restrictions stimulated domestic consumption and tourism and, therefore, an improvement in tax revenues.

Pedro Brinca, a professor at Nova SBE, who does not provide estimates, for his part believes that the shortage “below expectations at the beginning of the year, either due to inflation in general – which increases nominal revenues when civil servants’ salaries were not updated in the same proportion – or because of the increase in fuel prices, which caused ISP, for example, between April and May grew by more than 22%”†

“The fact that we have higher-than-expected growth in the first quarter will also be a very positive factor as tax revenues have a very strong relationship with the level of economic activity”adds.

For the economist, the forecast of the 1.9% deficit for the whole year may even be too pessimistic and does not even rule out, despite the uncertainty associated with it, “repeating the achievement of 2019”: “a budget surplus to have”.

Pedro Braz Teixeira also believes that nominal GDP is likely to grow faster than expected, mainly due to inflation above the government’s forecast (3.7%), but also because of the higher-than-expected value of GDP in the first quarter.

“The deficit target of 1.9% of GDP for the whole year should therefore be achieved without major efforts. Given the sharp rise in interest rates, it would be advisable to reduce the deficit more quickly, in order to slow down the fall in public debt. help out “vinca.

According to the most recent data from INE, the government balance in the first quarter of last year showed a deficit of 6% of GDP, while in the fourth quarter it stood at -1,806.0 million euros, which corresponds to -3.2% of GDP. the GDP.

For the whole of 2021, the government deficit in the national accounts fell to 2.8% of GDP, below the government’s official target, after rising to 5.8% in 2020.

The government forecasts a budget deficit of 1.9% for this year.

With national accounts by institutional sectors, INE also discloses the household savings rate, which fell to 10.9% of disposable income in the fourth quarter of 2021.