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Press release of the Banco de Portugal on the May 2020 issue of the Economic Bulletin

Today, the Banco de Portugal publishes the May 2020 issue of the Economic Bulletin. The Bulletin features an analysis of the Portuguese economy in 2019 and includes a Special issue on “The economic impact of the pandemic crisis”.


The Portuguese economy in 2019 and recent developments

In 2019 the Portuguese economy expanded further, although at a slower pace than in the previous two years, largely due to a slowdown in exports stemming from the deceleration in external demand for Portuguese goods and services. As such, the goods and services account surplus decreased, which was the main reason for the reduction in the Portuguese economy’s net lending.

The unemployment rate continued to decline in 2019, albeit more modestly, in a year marked by a substantial increase in labour productivity, in contrast to developments in previous years.

While there was a slight acceleration in compensation per employee, the economy’s wage bill grew at a slower pace, contributing to the slowdown in households’ disposable income. Private consumption also decelerated from the previous year, but the household saving rate was stable at historically low levels.

Growth in investment rose slightly in 2019, despite the deceleration profile observed throughout the year.

The Portuguese economy performed relatively positively in 2019. This reality deteriorated in a sudden and significant manner due to the current pandemic crisis, whose economic consequences are yet difficult to assess. However, very profound – and potentially long-lasting – negative effects are unavoidable, which are likely to disrupt the Portuguese economy’s adjustment process.


Special issue: “The economic impact of the pandemic crisis”

Aiming to contribute to the analysis of the channels through which the COVID-19 pandemic affects economic activity and to an understanding of the policy responses taken by the authorities, the Economic Bulletin includes a Special issue on “The economic impact of the pandemic crisis”, consisting of two separate parts.

Part 1 - Macroeconomic impact and policy responses

Part 1 of the Special issue looks into the macroeconomic impact of the COVID-19 pandemic and the policy responses taken by the different authorities in several countries.

The pandemic stemming from the spread of the novel coronavirus represented a major negative shock to global public health, with very adverse economic consequences for many countries. The form and size of the economic impacts of the crisis are not yet fully foreseeable.

Policy-making authorities in the various countries and international institutions with competence in economic matters have sought to assess the different ways in which the pandemic has had an impact, by putting in place a wide range of policies aimed at mitigating the effect of the COVID-19 pandemic and the corresponding containment measures.  

A number of measures have been introduced with the purpose of supporting firms’ liquidity, most notably moratoria on principal and interest payments on existing loans, the establishment of subsidised credit lines and public guarantees on new loans, the deferral of tax obligations, as well as the possibility of temporarily laying off staff, on partially reduced pay, with costs being shared between firms and social security.

At the same time, measures were introduced to support the financial situation of households, including aid to the maintenance of jobs through temporary layoff schemes and dedicated social benefits, as well as moratoria on principal and interest payments on some existing loans to households.

Turning to macroeconomic policy, central banks have taken action to put conditions in place to provide liquidity on a large scale. 

This extensive set of policy responses is without precedent in the recent past, in terms of both financial envelope and scope. However, great uncertainty remains about the macroeconomic impacts of the pandemic and the effects of the action taken. Mitigating the effects of the economic crisis and fostering conditions to re-launch the economies will require authorities to make a massive effort to assess unintended effects – and make corrections and perform adjustments – as well as strengthen policies and anticipate new responses.


Part 2 - Short-term impacts on Portuguese firms and households

Part 2 of the Special issue describes the results of two exercises carried out with the purpose of simulating the short-term consequences of the pandemic for the financial situation of firms and households. 

Underlying these exercises are common assumptions about the impact of the pandemic on each sector’s activity, which largely reflect the results of the Fast and Exceptional Enterprise Survey, conducted by Statistics Portugal and the Banco de Portugal during the week of 6-10 April. The impact of the mitigation measures to deal with the effects of the pandemic announced by the government is also analysed.

The findings of the analysis indicate that the share of firms without sufficient liquidity to cover fixed costs increases in tandem with the number of days of reduced activity, as their cash reserves, deposits and undrawn credit lines are progressively exhausted. 

Ignoring the possibility of a simplified layoff, 17% of firms are estimated to face a liquidity deficit after 40 days of reduced activity. The share of firms with a liquidity deficit after 40 working days is higher among large enterprises than among other size classes. The sector with the largest share of firms experiencing a deficit is “accommodation and food services”. 

Taking into account the adoption of the simplified layoff scheme, the share of firms with a deficit in the 40 working-day scenario drops to around 12%, which is similar to what was seen prior to the pandemic. The drop is more significant for large enterprises and the “accommodation and food services” sector, which, nonetheless, is still the sector with the largest share of firms with a liquidity deficit even taking into account the simplified layoff scheme. 

With regard to the impact on Portuguese households, the reduction in economic activity due to the containment measures had a negative impact on their disposable income and, consequently, their consumption decisions. The simulation exercise suggests that after taking into account the income support measures put in place by the government, households’ disposable income is approximately 5% lower and labour income is down by around 8% compared to before the pandemic. The negative impact on disposable income is more marked for households with higher income and those in younger age groups.

Considering all households, the average value of income net of spending in non-durable goods, utilities, loan instalments and rents on the primary residence is approximately 8% lower compared to its pre-pandemic value, taking into account income support measures and the moratorium on loans for the purchase of the primary residence and the exceptional regime governing late rent payments.  The moratorium on loan instalments has a more substantial impact than the moratorium on rents across all income classes and age groups. Overall, the moratoria have a particularly favourable impact on lower-income households and younger households.


The Economic Bulletin also includes eight boxes:

Box 1: The recent decrease in interest rates on housing loans in Portugal compared to the euro area

Box 2: Structural developments in revenue from taxes and social contributions

Box 3: The industry-services decoupling: Portugal in the context of advanced economies

Box 4: A characterisation of top managers in Portugal

Box 5: Innovation indicators in Portugal

Box 6: How digital is the Portuguese economy? 

Box 7: Propensity to consume in Portugal and the euro area: an analysis with survey data

Box 8: Recent developments in the profitability of Portuguese enterprises