Portugal maintains 2022 deficit forecast despite first-half surplus

LISBON (Reuters) -Portugal swung to a budget surplus of 0.8% of gross domestic product in the first half of 2022 from a deficit of 5.7% a year ago, the National Statistics Institute (INE) said on Friday, although it left its full-year deficit forecast unchanged.

In an update of the country's excessive deficit procedure reported to Brussels, INE said the fiscal gap this year should narrow to 1.9% of GDP - as budgeted by the government - from 2.9% in 2021.

High inflation has contributed to the first-half surplus, as did continuing economic recovery, with tax revenues soaring 20.7%, INE said.

Portuguese inflation reached 9% year-on-year in August, according to latest available data, more than double the 4% forecast in the 2022 budget.

INE said that in January-June this year total revenues rose 12.4%, while spending fell 3%.

With inflation weighing on private consumption, the economy lost momentum in the second quarter, but still expanded by a strong 7.1% compared to a year earlier, after growing by 11.8% in the first quarter.

The Bank of Portugal expects the economy to grow 6.3% this year.

Filipe Garcia, economist at Informacao de Mercados Financeiros consultants, said that "Portugal's budget execution environment remains exceptional and probably unrepeatable", as strong growth and high inflation are generating important revenues from consumption, energy products and real estate.

At the same time, expenditure was planned at 2021 prices, in a context of low unemployment and debt interest are still at very low levels, he said.

He said 2023 "will be much more challenging in all respects and should require additional prudence" from the government.

(Reporting by Sergio Goncalves; editing by Andrei Khalip and Catherine Evans)