Following a historical fall in 2020 (-8.4%), the Portuguese economy is expected to grow markedly in 2021 (4.8%) and 2022 (5.8%), which makes this recovery the fastest in the most recent crises. The pace of expansion will slow down in 2023 and 2024 (3.1% and 2.0%). Gross domestic product (GDP) will return to pre-pandemic levels in the first half of 2022. In 2024 economic activity will stand approximately 7% above its 2019 level, implying contained losses compared to the trend projected prior to the pandemic.

The current projections revise economic growth in 2022-23 upwards from that projected in June (0.2 and 0.7 p.p. respectively), while the estimate for 2021 published in June and October remains unchanged. 

The growth path is sustained by the maintenance of favourable financial conditions and the implementation of European Union funds. In the short term, activity will be constrained by a renewed wave of the pandemic in Europe and global supply chain disruptions.  

Inflation is projected to increase in 2021 and 2022, to 0.9% and 1.8% respectively, and to stand at 1.1% and 1.3% over the next two years, highly influenced by the energy component. The projection for inflation was revised upwards over the projection horizon compared with the June issue of the Economic Bulletin, particularly as regards 2022 (0.9 p.p.).

Economic recovery will lead to a rise in employment and a decrease in the unemployment rate to better than pre-pandemic levels. In 2021 employment will rise by 2.5%, with projected growth of 1.6% in 2022 and 0.4%, on average, in the period 2023-24. After a slight increase in 2020, the unemployment rate will edge downwards, dropping to 5.6% in 2024. 

Private consumption will grow by 5% in 2021 and 4.8% in 2022, decelerating to 1.8% in 2024. These developments are underpinned by real disposable income growth, favourable financial conditions and accumulated wealth during the crisis. The savings rate will decrease in 2021-22, after peaking at 12.8% in 2020. 

Public consumption is expected to grow by 4.8% in 2021, accelerating from the previous year, and to grow more moderately in the period 2022-24.

Gross fixed capital formation (GFCF) will grow markedly over the projection horizon: 4.9% in 2021, 6.9%, on average, in 2022-23 and 3.9% in 2024. Investment will benefit from EU fund inflows, prospects for a recovery in demand and favourable financing conditions. 

Exports will grow by 9.6% in 2021, 12.7% in 2022 and 5.9%, on average, in 2023-24. Exports of services will rebound strongly over the projection horizon, with the expenditure component providing the main contribution to GDP growth in 2022. The current and capital account surplus will increase from 0.2% of GDP in 2021 to an average of 2.1% in 2022-24, stemming from the recovery in tourism and higher EU fund inflows.

The Portuguese economy will face major challenges over the next few years, and the economic policy response is key to sustained growth and the return to convergence with Europe. The efficient execution of projects under the Recovery and Resilience Plan and the implementation of associated reforms are key for that goal, given the multiplier effects on activity and the impact on potential growth. This is a unique opportunity to boost the long-term pace of growth of the Portuguese economy.