In the wake of the pandemic crisis, Portugal adopted, as other countries, very significant fiscal measures. The direct impact of these measures on the budget deficit for 2020 is estimated at 2.7% of GDP. This quantification does not take into account the impact of automatic stabilizers nor of second-round effects and has a high degree of uncertainty than usual.  Around one third of the impact took place in the first half of 2020. As to its composition, the most relevant measure was the “simplified layoff” which, along with the measures that succeeded it after July, should amount to 0.9% of GDP (including social contributions exemption). Other measures with significant impacts are additional expenditure in the health sector, state aid to TAP and the partial suspension of Corporate Income Tax prepayments.

The fiscal stimulus package impact is higher than the one posted in 2008 and 2009 as a response to the financial crisis, which amounted to 1.2% of GDP. However, it is lower than the budget stimulus implemented in the euro area in 2020, which the European Fiscal Board estimated at 4% of GDP in the beginning of July. 

For more details see section 2.2, part III of the Economic Bulletin for October, Banco de Portugal.

Prepared by Lara Wemans. The analysis, opinions and results expressed herein are those of the author and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

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