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Press release of the Banco de Portugal on the May 2022 issue of the Economic Bulletin

The Portuguese economy grew by 4.9% in 2021, partially recovering from the 8.4% fall of the previous year. The recovery was marked by developments in the pandemic, with a mixed intra-annual profile: a decline in activity at the beginning of the year – reflecting a new wave of COVID-19 and the ensuing lockdown – a strong rebound in the following two quarters and, in the last quarter, a slowdown in the pace of growth owing to the introduction of additional containment measures.

The economy grew at a slightly slower pace than the euro area, after a sharper decline in 2020. The deeper impact of the crisis in Portugal reflected the higher share of some services’ sectors, in particular tourism exports. Support from economic policies proved essential to preserve productive capacity and for sectoral recomposition. 

The labour market was buoyant throughout the year. Employment benefited from public support policies and remained resilient during the pandemic. By the end of 2021, employment had recovered the pre-pandemic level and unemployment was lower than in 2019. Average compensation per employee accelerated compared to 2020, increasing by 5.5% in the two years of the pandemic.

Households saw an increase in disposable income, which supported the recovery in consumption. The household savings rate decreased from 12.7% in 2020 to 10.9% in 2021, but remained above its pre-pandemic level (7.2%).

Investment grew above the euro area average. There was a strong recovery in household and corporate investment, in tandem with the continued major contribution of public investment. New loans to households for house purchase grew markedly (32.8%), on the back of reduced uncertainty and delayed decisions due to health restrictions mainly in 2020. Firms continued to benefit from favourable financing conditions, low interest rates and longer maturities in State-guaranteed credit lines and, until the end of September, credit moratoria.

The budgetary deficit stood at 2.8% of GDP, down by 3.0 p.p. from 2020. These developments reflect the recovery in economic activity (1.2 p.p.), the lower impact of temporary measures not associated with the pandemic (0.8 p.p.) and a decrease in interest expenditure (0.4 p.p.). The government debt ratio declined to 127.4% of GDP, also helped by nominal growth in activity and as well the reduction in deposits.

Inflation rose to 0.9%, mainly owing to energy price developments. Disruptions caused by rising energy prices and the shortage of a number of essential goods pose a challenge for the world economy, with negative consequences for activity and, mostly, inflation.

The Portuguese economy’s net lending capacity improved. The current and capital account balance stood at 0.7% of GDP. The goods account deficit deteriorated, mainly due to rising energy prices. The services account surplus increased slightly, but the balance of travel and tourism is still about half of that recorded in 2019. The increase in transfers from the European Union (EU) boosted the improvement in the income and capital account surplus.