The European Commission highlighted “concerns” about Portugal related to the increase in house prices, with “signs of overvaluation”, and the levels of public and private indebtedness, pointing to the “persistence of macroeconomic imbalances”.

In a report published on the Alert Mechanism, the risk screening exercise of potential macroeconomic imbalances, the community executive notes that, “in Portugal, concerns related to the debt ratios of households and non-financial companies, the Government and of external debt in relation to GDP [Gross Domestic Product] are maintained, although debt ratios have resumed their downward trajectory after the Covid-19 crisis”.

“Nominal house price growth is accelerating and there have been signs of overvaluation in house prices”.

Persistent “imbalances”

In this year's Alert Mechanism Report, Brussels concludes that in-depth revisions are needed in Portugal and 16 other Member States, and in the Portuguese case, macroeconomic “imbalances” persist, some of which have already been detected.

At a time when the EU economy is moving from a recovery from the Covid-19 pandemic to a strong slowdown in growth subject to inflationary pressures, Brussels highlights from the outset that, in Portugal, “the concerns related to the evolution of the prices of houses are increasing”.

“Nominal house price growth accelerated from 8.8% to 9.4% in 2021. Nominal year-on-year growth in house prices accelerated to 13.2% in the second quarter of 2022. House prices were estimated at 23% overvalued in 2021. More than two-thirds of mortgages have interest rates fixed for just up to one year.

Public debt

Other “significant concerns” are related to public debt, according to the European Commission, which warns that “the risks of fiscal sustainability are high in the medium term and in the medium to long term”.

With regard to private indebtedness, “the vulnerabilities related to the debt ratio of non-financial companies in relation to GDP remain, although it is on a decreasing trajectory”, indicates the community executive. Even so, “there are risk factors associated with the macroeconomic environment”.

As regards household debt in relation to GDP, “it remains above both the prudential and fundamental benchmarks, although it declined in 2021 and continued to decline in the first half of 2022”.

In this annual exercise, with the Alert Mechanism Report, Brussels identifies Member States for which in-depth analyses are needed to assess whether they are affected by imbalances that require political action.