PHOTO CREDIT TKyear. “The big caveat is that all GDP projections are fairly uncer-
tain at the moment,” says Michele Napolitano, head of Western
European Sovereigns at Fitch Ratings. Capital Economics says it
is unlikely that Portugal will recover all its economic lost ground
by the end of 2021.SUN, LOW TAXES,
CHEAP LABOR, GOOD HOSPITALS
A big question mark is tourism, a key industry in the small
country.
“Tourism has been the most affected sector, not only because
of worldwide travel bans that with some countries are still active,
but also due to the domestic lockdown,” says Pedro Castro e
Almeida, CEO at Santander Portugal. “Tourism in Portugal
represents 15% of the economy and 17% of employment, and
we have seen cancellations on the order of 80% to 90% in some
cases. Recovering will take time, and it’s important that we, as
country, can make a strong case for getting back lost interna-
tional demand as soon as possible—and, at the same time, seize
this opportunity to further diversify our economy and find new
avenues for the country to grow in the future.”
In July, Portuguese officials strongly protested the UK’s deci-
sion to keep their country off the list of those exempted from
quarantine.
A short-term lack of tourists might be made up for by a
longer-term increase in permanent residents. Portugal is a small
economy with a relatively low cost of labor, and as such it could
benefit from some relocation during the post-pandemic period,
says Ricardo Reis, professor of economics at the London School
of Economics.On The
Brink Of
Recovery
The Covid-19 crisis derailed
Portugal’s economic comeback.
Can stimulus, fiscal prudence and
an attractive climate for retirees
get it back on track?W
hile Portugal is still recovering from the
global financial crisis that began a dozen
years ago, its recent performance has been
promising within the European context. In
2019, its GDP grew well above the eurozone
average, and it started this year at a similar pace. For the first
time in 45 years, the government posted a budget surplus in
2019, a year ahead of expectations. As an open economy heav-
ily reliant on exports and tourism, Portugal was been working
to diversify its output by increasing activities in information
technology and services.
Then Covid-19 hit. While cases were fewer than in Spain
and Northern Italy, the pandemic and the lockdown to contain
it brought the economy to a halt. The recovery so far has been
mixed, and the full impact of the recession and the shape of
the post-pandemic economy are still unknown. The only cer-
tainty is that the continent’s westernmost nation will be heavily
affected because of its reliance on exports and tourism.
“Within Europe, Portugal will probably be among the most
affected, with a double-digit recession rate in 2020,” says Paula
Carvalho, chief economist at Banco BPI. “We expect minus
12% 2020 GDP. This is especially due to the importance of cul-
tural, entertainment and tourist-related activities for the econ-
omy, as well as to still-high public debt levels. We estimate that
direct measures to support the economy will amount to about
7% of GDP, contrasting with its European peers.” Germany
has extended unlimited credit lines to small and medium-size
enterprises, for instance, she notes.
Forecasts range widely, however. The Bank of Portugal
expects a GDP decline of 9% in 2020 and a sharp rebound next PHOTO CREDIT TK
54 | Global Finance | September 2020
COUNTRY REPORT
PORTUGAL | By Tiziana Barghini