Macroeconomic Picture

Indicator 2014 - 2018 2019 2020 (f) 2021 (f)
Source: Bank of Portugal, June 2020
GDP 2.1% 2.2% -9.5% 5.2%
Private Consumption 2.4% 2.2% -8.9% 7.7%
Investment 5.6% 6.3% -11.1% 5.0%
Unemployment Rate 10.8% 6.5% 10.1% 8.9%
Consumer Prices 0.6% 0.3% 0.1% 0.8%

The Portuguese economy had been growing solidly since 2014, until Covid-19 emerged in March 2020. Exports, supported by strong tourism activity, were a major driver, together with an increase in household consumption and investment, namely in the construction sector, in recent years. The labour market was likewise performing very positively. After reaching an all-time high above 17% in early 2013, the unemployment rate decreased sharply, standing at 6.5% in 2019.

When the Portuguese economy was growing at a good pace, the Coronavirus pandemic severely impacted the global economy, and in Portugal, due to the high dependence on foreign tourism, the effects will be sharp in 2020.

Effectively, despite performing quite well during the outbreak and being amongst the first set of countries moving out from full lockdown, Portugal’s image was deeply affected by the significative increase in infected cases over June and July, leading a number of countries to place restrictions on travelling to Portugal during the Summer tourist season. GDP plunged 16.3% y-o-y in Q2, after a 2.3% drop in Q1.

The INE estimate regarding the labour market points to an unemployment rate of 7% in June, showing a 0.4 percentage point (pp) increase year-on-year and +1.1pp month-on-month. Although the layoff measures introduced by the Government are mitigating the impact of this pandemic crisis on employment, the Bank of Portugal foresees an unemployment rate of 10% in 2020 (+3pp y-o-y).

In addition to a simplified layoff, the Government has provided several other measures to tackle the impact of Covid-19, of which we highlight: the deferral of tax and social security payments, €3.5Bn credit lines to support business liquidity, bank moratorium and rent moratorium. However, considering Portugal’s high public debt (of around 120% of GDP in 2019), which signifies that the country’s economic recovery will be very dependent on the support from the European Union. This comprises a total of €45Bi over the next 10 years, of which €15Bi are non-refundable transfers.

Economy recovery is expected to be faster, when compared to the previous crisis which recorded four years of recession. Not only does the bank sector has better indicators, but also external support, namely from the European Union, is expected to arrive on time. The Bank of Portugal forecasts point to a 9.5% drop in GDP in 2020, if the pandemic remains controlled over the second half of the year, and already 5.2% and 3.8% growth in 2021 and 2022 respectively, which would drive economy activity in 2022 to levels close to those achieved in 2019.



Key Economic Indicators

Source: Bank of Portugal

GDP Volume

Source: Bank of Portugal