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

The October 2020 issue of the Economic Bulletin analyses developments in the Portuguese economy in the first half of 2020, updates the macroeconomic projections for the year and presents complementary analyses focused on the pandemic crisis.

Updated projections for 2020

The Portuguese economy will fall by 8.1% in 2020, reflecting a year-on-year drop of 9.4% in the first half and a recovery in the second half, which translates into a year-on-year change of -6.8%. 

The projection now presented revises the June forecast upwards by 1.4 p.p., reflecting the smaller than expected impact of lockdown on the Portuguese economy and a better than expected reaction by enterprises and households. The Quarterly National Accounts revealed a fall in activity in the second quarter (-16.3% year-on-year) that was less pronounced than expected. The behaviour of the Portuguese economy accompanied GDP developments in the euro area which, according to the ECB’s projections, will fall by 8.0% in 2020, a reduction also smaller than that previously projected. 

The partial recovery of Portuguese GDP in the second half of the year is the result of continued restrictions to activity in certain sectors, the prevailing uncertainty and the impact on productive capacity. Sectoral heterogeneity will remain over the recovery phase, with tourism and those services that are most exposed to physical contact recovering more slowly.

The 2020 contraction in activity is associated with a fall in the number of hours worked and a reduction in employment of 2.8%, smaller than the 4.5% decline projected in June. These developments are owed not least to the resilience shown by enterprises or the employment protection policies adopted. The unemployment rate will increase to 7.5%, a downward revision of 2.6 p.p. 

Public consumption will increase by 1.2% in 2020. Private consumption will fall by 6.2%, with a strong increase in the savings rate in the first half, which will gradually be reversed over the second half of the year. 

Regarding external trade flows, exports of goods and services are projected to fall by 19.5% in 2020, whilst imports of goods and services should decrease by 12.4%. 

The fall in tourism exports is the main reason for the deficit in the goods and services account, determining the worsening of the current and capital account balance. In 2020, the Portuguese economy will register net borrowing of 0.6% of GDP, which is the first time this will have happened since the previous crisis.

In terms of prices, HICP inflation is forecast to be 0%.

The short-term outlook for the Portuguese economy remains surrounded by uncertainty. The recovery in the second half of the year implies a faster and more marked reversal of the cycle than that observed in the previous recessive episodes. However, it cannot be excluded that the persistence of the pandemic crisis may cause a retraction in the recovery of demand and supply. National and supranational economic policies will continue to play a fundamental role in a sustainable recovery process.