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Press Release of the Banco de Portugal on the December 2020 issue of the Economic Bulletin

The Portuguese economy will decrease by 8.1% this year, to start on a recovery path in 2021, extending up to 2023. Gross domestic product (GDP) is projected to grow by 3.9% in 2021, 4.5% in 2022 and 2.4% in 2023. 

The current projections maintain the estimate for GDP in 2020 released in October, due to the combination of two opposing factors: the upturn in the third quarter was higher than anticipated, but the evolution of the pandemic and related containment measures have led to a downward revision in activity in the fourth quarter.

Economic Bulletin - December 2020

According to the projections, restrictions will be gradually lifted from the first quarter of 2021 onwards, although activity will continue to be affected until early 2022, when an effective medical solution will have been fully implemented. Economic activity is projected to return to its pre-pandemic level by the end of 2022.

The recovery will benefit from the monetary and fiscal policy decisions taken in response to the crisis. 

Inflation, as measured by the harmonised index of consumer prices, is projected to stand at -0.2% in 2020 and to increase to 0.3% in 2021, 0.9% in 2022 and 1.1% in 2023. These price developments are more muted that those projected for the euro area.

The upturn in activity is reflected in an improvement in the labour market, with employment projected to increase from mid-2021 onwards. After a 2.3% decrease in 2020, employment will gradually recover in 2021-23. The unemployment rate will increase to 7.2% in 2020 and 8.8% in 2021, decreasing to 7.4% in 2023. 

Private consumption will drop by 6.8% in 2020 but grow over 2021-23, as containment measures are lifted, uncertainty subsides and the labour market improves. Public consumption will grow in every year of the projection horizon. 

GFCF will drop by 2.8% in 2020, a small reduction in the pandemic context, after which it will grow at an average rate of 3.9% in 2021-23, sustained by measures to support firms and by the inflow of European funds. 

Exports of goods and services will fall by 20.1% in 2020 and recover in the course of the following years, with cumulative growth of 31.5% by 2023. The gradual lifting of social distancing measures means a slower recovery in exports of tourism and tourism-related services. Imports of goods and services are projected to decline by 14.4% in 2020 and to increase by 24.7% by 2023. 

The current and capital account balance will turn negative in 2020 (-0.6% of GDP) due to the reduction in the tourism surplus. In the subsequent years, the economy will return to a net lending position, which reaches 2.7% of GDP in 2023. These developments are associated with an improvement in the goods and services account and the increase in European funds, in particular those associated with Next Generation EU. 

The economic outlook remains highly uncertain and is conditional on the evolution of the pandemic and the swiftness of large-scale vaccination. The pace of recovery in economic activity will be determined by the impact of the crisis on productive capacity and the required reallocation of resources among firms and sectors. Higher public and private debt and credit risk will pose major challenges to the Portuguese economy over the coming years. National and supranational policies will continue to play a key role in the recovery and resilience of the Portuguese economy, thereby fostering a rebound in investment and the adequate allocation of resources.