Increased uncertainty associated with the COVID-19 pandemic will tend to have persistent effects on economic activity
24.04.2020
According to a synthetic indicator of uncertainty for the Portuguese economy, economic uncertainty increased markedly in the first quarter of 2020, although it is still below the peaks seen in previous crises. This indicator aggregates uncertainty measures of different nature, which are based on indicators of volatility in financial markets, the recurrence in newspaper articles of terms related to economic policy uncertainty and the answers to the European Commission confidence surveys. In the latter case, it should be noted that the effects of the pandemic are still relatively limited.
The outbreak of the new coronavirus is having a negative and significant impact on economic activity in Portugal. The increased uncertainty associated with the pandemic is an additional channel for the transmission of such an impact, resulting in the postponement of consumption and investment expenditures, an increase in precautionary savings and a possible increase in risk premia. Evidence points to a significant and, in particular, lasting effect of increased uncertainty on economic activity.
For further details, see Manteu and Serra (2017) "Measures of uncertainty and their impact on the Portuguese economy" Banco de Portugal Economic Studies, vol. III, no. 2.
Prepared by Sara Serra and Cristina Manteu. The analysis, opinions and results expressed herein are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.
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