Perspectives

The worst is over

nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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PORTUGAL  
THE WORST IS OVER  
Portugal was one of the European countries hit hardest by the third wave of the coronavirus pandemic this winter.  
The government reinstated a “strict” lockdown that drastically reduced the spread of the virus. A very gradual  
reopening plan was launched on 15 March and will end on 3 May. Hopes for a solid economic recovery hinge on the  
vaccination campaign currently underway, but like elsewhere in the European Union, it is progressing at a slow pace.  
The success of the UK vaccination programme nonetheless raises promising prospects for the recovery of Portugal’s  
tourism sector, which is highly dependent on British tourists. Real GDP could rebound by as much as 5-5.5% in 2021,  
after contracting by 7.6% in 2020.  
Prime Minister António Costa unveiled a very gradual reopening plan  
similar to the one in the UK – which began on 15 March and will  
GROWTH AND INFLATION (%)  
end on 3 May with the opening of restaurants and cafés, among other  
businesses. From an economic perspective, the government announced  
a new EUR 7 bn fiscal package on 12 March. The big challenge in the  
weeks ahead will be to restart tourism activities. Important measures  
have already been taken: starting on 17 May, British tourists will be  
authorised to enter Portugal if they have a Covid-19 vaccination certi-  
ficate or a document showing that they have recently had a negative  
PCR test. This announcement follows the UK government’s decision  
to take Portugal off its red list, which means that travellers returning  
from Portugal will no longer have to observe a quarantine period.  
These encouraging prospects are reflected in the confidence indices,  
notably in the European Commission’s economic sentiment index (ESI),  
which improved markedly in March (+7.6 points to 93.1). Even so, the  
ESI is far below its pre-crisis level, and consumer confidence is still  
extremely fragile.  
GDP Growth  
Inflation  
Forecast  
Forecast  
7.0  
5
.4  
5.0  
3.0  
1.0  
3
.5  
2
.5  
1.2  
0
.9  
0
.3  
0.0  
-
-
1.0  
3.0  
-5.0  
-
-
7.0  
9.0  
-7.6  
2
019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
In terms of employment, the government’s job support measures have  
undoubtedly helped reduce the damages of the crisis on the labour  
market: employment fell by 1.9% in 2020, which is far less than the 7.6%  
decline in GDP in volume. Yet these gross employment figures mask  
important disparities. Young workers have been hit disproportionately  
harder by the crisis, a phenomenon that is illustrated by the sharp  
decline in the employment rate for the 15-24 age group in 2020 (see  
chart 2). The coronavirus crisis will leave deep scars on the insertion  
of young people in the labour market.  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
EMPLOYMENT RATE FOR THE 15-24 AGE GROUP (%)  
41  
39  
37  
As to public finances, the 2020 fiscal deficit of 5.7% of GDP is relatively  
small compared to those of its European neighbours, as Portugal  
benefited from a fiscal surplus before the crisis. Even so, this is still  
a very significant deficit, and public debt swelled by nearly 16 points  
of GDP in 2020, bringing the debt ratio to 133.6%. Yet the short-term  
risks of Portuguese debt are very limited. After rising significantly in  
February, 10-year sovereign bond yields slipped back, close to the  
levels observed prior to the Covid-19 crisis (around 2%).  
3
5
33  
31  
29  
27  
25  
23  
21  
One last point: the decline in the number of real-estate transactions  
due to the health crisis does not seem to have reversed any upward  
momentum in Portuguese house prices, which continued to report  
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9
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21  
1
very solid growth in 2020 (+8.4%) . The sharp price increases can be  
CHART 2  
SOURCE: PORTUGAL STATISTICAL OFFICE (INE)  
attributed to the ongoing decline in mortgage rates coupled with a  
supply shortage of homes.  
Completed on 31 March 2021  
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Portugal statistical office (INE)  
The bank  
for a changing  
world  
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