A GDP estimate released by the National Statistics Institute on 2 February showed the economy grew a meager 0.4% in seasonally-adjusted quarter-on-quarter terms in Q4, after surging 13.3% in Q3. In annual terms, GDP contracted 5.9% in Q4 (Q3: -5.7% year-on-year). The result means the economy shrank 7.6% in 2020 as a whole, in contrast with 2019’s 2.2% expansion, showing the scale of the pandemic’s shock on activity.
Although no breakdown was available with the flash release, the loss in momentum was likely due to Covid-19-related restrictions—which were tightened from mid-October and included the imposition of a curfew in early November—constraining private consumption. In addition, tourism took a hit, after a relatively restriction-free Q3. That said, both domestic and external demand contributed positively to the slight quarterly growth in GDP in Q4.
Moving forward to the new year, the imposition of a lockdown on 15 January, already extended until at least 14 February, spells trouble for activity in the first quarter. Looking at 2021 as a whole though, the economy should benefit from a rebound in private consumption, exports and fixed investment as vaccines are rolled out and travel gradually recovers, and from higher government spending.
On the outlook for 2021, Maddalena Martini, economist at Oxford Economics, commented:
“[We] forecast a rebound to 4.4% growth this year supported by the vaccine campaign and the gradual reopening of the economy. However, risks remain tilted to the downside with concerns about the pandemic’s long-lasting economic damage and the current deterioration of the health situation.”
FocusEconomics Consensus Forecast panelists see GDP climbing 4.5% in 2021, which is down 0.3 percentage points from last month’s forecast. In 2022 the economy is seen growing 4.4%.
Looking at the medium term, she added:
“The fiscal measures recently extended by the government and the Economic and Social Stabilization Program include additional spending for the national health system, financial support for temporarily furloughed employees, state-backed credit guarantees for SMEs, and a deferral of social security payments. Together with the European aid package and the funds coming from the Next Generation EU, these measures will help cover the economic losses and support Portugal’s recovery.”