Press release of the Banco de Portugal on the October 2021 issue of the Economic Bulletin
The Portuguese economy will grow by 4.8% in 2021, edging nearer to pre-pandemic levels by the end of the year. The recovery in activity reflects the control of the pandemic through advances in the vaccination process – with positive effects on economic agents’ confidence – and the maintenance of expansionary economic policies. Inflation will stand at 0.9% in 2021.
In the first half of the year, the fall in activity and the subsequent rebound were more marked in contact-intensive services. Expenditure on services remains below pre-pandemic levels, given the persistence of precautionary behaviour, a slow recovery in tourism and increased recourse to remote work. In contrast, expenditure on goods has already exceeded pre-pandemic levels, albeit constrained by supply-side disruptions.
Private consumption will grow by 4.3% in 2021, sustained by disposable income growth and the gradual reduction in the savings rate. Real disposable income growth stems from the strong rebound in employment and the momentum in nominal wages, and is dampened by the increase in inflation.
Public consumption is expected to grow by 5.2% in real terms, after nearly stabilising in 2020.
Investment will rise by 5.6%, sustained by recovery prospects, European funds and credit at low interest rates and with State-guarantees.
Exports of goods will grow by 10.7% in 2021, in tandem with the buoyancy of external demand for Portuguese goods and services. Disruptions in supply chains will continue to affect developments in this aggregate until the end of the year.
Exports of services remain constrained by the impact of the pandemic in 2021, growing by 7%, after a 37.2% decrease in the previous year. At the end of the year, exports of services will stand around 20% below pre-pandemic levels.
The current and capital account balance will increase, to stand at 1% of GDP, benefiting from European fund inflows.
Turning to the labour market, employment will rise by 2.6% and the unemployment rate will edge down to 6.8% (7% in 2020), benefiting from the rebound in labour-intensive services.
In 2021 the Portuguese economy remains on the recovery path that started in the third quarter of 2020. The pandemic shock proved temporary, despite a protracted impact on a number of sectors and firms. Upcoming challenges include reducing indebtedness, the efficient use of the Recovery and Resilience Plan and the required reallocation of physical and human resources in response to climate and digital transitions. Adapting economic policies and Portugal’s success in handling these challenges will contribute to both a stronger expansion of activity than that projected prior to the crisis and the return to convergence with the euro area.