Portugal: 'Domestic demand continues to recover at the beginning of the year'

Our MICA-BBVA model forecasts zero growth in the first quarter after the positive surprise in 4Q13

Higher expectations from households and the increase in retail sales point to recovery in 1Q14.

In the first quarter of 2014 the improving trend in household confidence (first seen in 4Q12) continued, mainly thanks to movements in the labour market and expectations of a sustained reduction in the unemployment rate i n the next few months, which is reflected in increased consumption, with retail sal es growing 3% to February over the average for 4Q13 (Figures 4 and 6), also brightened by very low inflation.

Industrial production fell slightly in February, but the quarterly average is still a little higher than in 4Q13.

The European Commission’s economic sentiment indica tor, the ESI, again rose significantly in March, at rates similar to those o f 4Q13, after business confidence improved more slowly in January and fell in Februar y. This figure, together with an increase in new orders, could be anticipating an im provement in industrial production in March, which grew by 0.7% to February over the p revious quarter’s average despite a slight fall in February (-0.6% MoM) (Figu res 3 and 5)

Net exports may reduce their contribution to growth in 1Q14.

After increasing in 4Q13, the export growth trend e ased a little in February, falling 0.4% over the previous quarter’s average. However, export orders, which had fallen in February, increased strongly in March, heralding an improvement in exports. But robust imports (2% above the 4Q13 average) could re duce the foreign sector’s contribution to growth in 1Q14. Despite the strengt h of the euro, exports outside the eurozone have gone up again (Figures 7 to 9).