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Press release of the Banco de Portugal on the March 2021 issue of the Economic Bulletin

The Portuguese economy will consolidate its recovery path in 2021. Between 2021 and 2023, economic growth is project to reach 3.9%, 5.2% and 2.4% respectively. Inflation will remain contained and more muted than in the euro area, edging up from -0.1% in 2020 to 0.7%, 0.9% and 1.0% over the projection horizon.

The outlook for the Portuguese economy continues to be influenced by developments in the pandemic. The recovery that started in the second half of 2020 was temporarily halted, although the impact of the current lockdown has been lower than that seen in the second quarter of 2020. Despite short-term volatility, the deployment of the vaccination process has strengthened confidence in economic recovery, which is also anchored in the favourable monetary and fiscal policy stance. Projections assume that restrictions will be gradually lifted from the second quarter of 2021 onwards and that the implementation of an effective medical solution will be concluded by early 2022, both in Portugal and the euro area. 

Press release of the Banco de Portugal on the March 2021 issue of the Economic Bulletin

Compared to December, projections for 2021 and 2023 remained unchanged, while for 2022 they were revised upwards by 0.7 percentage points.

The recovery varies across sectors and expenditure components, speeding up swifter after containment measures start being gradually lifted. The main contributions to economic growth stem from the components that have decreased the most in 2020, namely exports and private consumption. 

Private consumption will grow by 2.0%, 4.8% and 2.3% in 2012-23, with a slower recovery in services requiring social interaction. The upturn in consumption will be reinforced by the downward trend in the savings rate over the projection horizon. 

Investment will grow by around 5%, on average, benefiting from European fund inflows, particularly under the new Next Generation EU (NGEU) instrument.

The recovery in exports reflects the favourable dynamics of external demand for goods and the more gradual upturn in tourism and related services. Exports of goods and services will grow by 13.7% in 2021, 11.5% in 2022 and 5.3% in 2023. In turn, exports of goods will grow by 15.1% in 2021 – surpassing the 2019 level – and increase by 4.9% and 3.2% in 2022 and 2023 respectively. 

Imports will grow, on average, by 8.4% in 2021-23, decelerating at the end of the period, in line with developments in overall demand. The goods and services account deficit will decrease in 2021, to stand close to zero over the remainder of the projection horizon.

The pick-up in activity will lead to improvements in the labour market, with average employment growth at 0.8% in 2021-23 and a lower unemployment rate from 2022 onwards. At the end of the horizon, the unemployment rate is expected to exceed that seen in 2019, although standing far below that observed during the 2011-13 crisis.

The 2019 activity level will be reached in mid-2022, but there will be a loss compared to what would have been seen had there been no pandemic. The crisis caused an interruption in the accumulation of inputs, including human capital. There are also costs from the reallocation of inputs associated with the heterogeneous impact across sectors. Also, higher public and private sector debt will pose major challenges to the Portuguese economy.