Many people discuss what politicians and political institutions, as IMF, say about the future. A few trust them. They have to spread optimism, it´s their job. But an international consultant may not be optimistic or pessimistic, he has to be realistic, otherwise he will not be a consultant.
As I earlier mentioned, I belong to a group which makes economic forecasts.
I was in error! Late last year I calculated inflation for the whole of 2022 to 8,8% reaching maximum of 9,8. I now think the actual figure for middle-class will reach 11% with a top of 14%. As we know, inflation rate depends on what we consume, which depends on your income class. For the majority of electors, we talk about the low-middle or middle-middle class. As the lower classes cannot afford higher prices, they simply consume less or lower-class products, which will not reflect a raise in inflation. The top class have higher incomes and will have less vacations, consume less of brand-garniture and shoes, which means less inflation for them.
Next year will be the worst for Portugal in decades. Many factors will hit us.
1. As, in 2009, rating agencies will continue to give us good rating up to a point where it will fall to BB - and then the huge finance funds will raise the interest rates for the public debt to 4-5 times higher than others. The budget for 2023, presented newly to the Parliament, shows a rate of 2%, while it may reach 8%.
Government will have to ask for even more financial support.
2. EU-money is promised to support reconstruction of Ukraine, as soon there is a non-aggression agreement. Most probably it will come early 2023. Will EU ask citizens to pay more taxes in order to support some €24billion to Ukraine? Right now when most families have much higher expenses? We don´t trust that. We believe that many small countries which have been telling that the money gone to Greece, Spain and Portugal has not resulted in actual changes, will now tell that the PRR-money of many billions should not go to those countries and redirect them to Ukraine.
3. For many months Portugal exports fall while imports rise. The bureaucracy for exports of certain products, as wines, cheese, is great. Productivity in most sectors, except mechanics, shoes and garment, is very low, while our competitors´ is improving. This gap tends to rise, which means we will have less reserves and costs for insurance, etc. of exports will raise even more, which means we will pay higher interest rates for loans to private enterprises.
4. All this means inflation in Portugal will raise more than in other countries in the EU, which means even less productive investments will come 2023.
5. Tourism this year has been the best in many decades. But, the lack of qualified manpower was registered in evaluations by foreign agencies. They are afraid that this top 2022 is mainly because of quarantine for two years. Because of the crisis in the EU next year, they expect tourism to fall 2023. Many group bookings, normally at the London Tourism Fair now in November, may not be confirmed, which makes investments in maintenance and upgrade of hotels, restaurants, etc. unsure, which makes banks not financing them.
6. There are in Portugal around 350,000 homes to rent or sell for more than 12 months, except in Porto, Lisbon and close to the sea in the Algarve. There are 88,000 families which did not reached an agreement with their banks on delayed mortgages. Banks have those homes in their accounting rated to some 20% above real market values and do not want to sell them with a loss.
7. Banks have not sufficient cash-reserve for the crisis. ECB has warned them, but they prefer not to sell those delayed-mortgage homes for a less amount, waiting for the support of government to those families. But, that may take some time and may not come, as government will pay higher rates for loaned money.
The situation is similar in many other countries. In my opinion we are facing not only a REcession, but a DEPRESSION, similar to the one in 1920.
