Q4 2018 real GDP grew +0.4% q/q (+1.7% y/y), up from +0.3% in Q3 but lower than the H1 average of +0.55%. Overall in 2018, GDP grew a solid +2.1% (though down from +2.8% in 2017) driven by domestic demand. External demand subtracted -0.7pp from growth (after -0.3pp in 2017) as exports decelerated more markedly than imports. Investment grew +4.4% after soaring +9.2% in 2017. Rising real wages and the effect of social spending measures should continue to support consumption growth this year. Yet, there is limited scope for a further labor market recovery (unemployment is at a 15-year low, below 7%). Exports should slow as economic activity of the main trade partners eases. The drop in the manufacturing capacity utilization rate in Q1 2019 (back to its lowest level since 2014) is a bad sign for investment, but financing conditions should remain favorable in 2019, and there is a busy pipeline of EU co-funded investment projects ahead. We expect Portugal to grow +1.7% this year.
