Economy to contract 3.4% in 2020 says BPI

The economic research department of Portuguese bank BPI suggests that Portugal’s GDP will fall 3.4% in 2020.

However, it expects Portugal’s economic growth to bounce back by 5.9% in 2021, but warns that the current crisis could have some long term effects with some sectors, like tourism, only making a gradual recovery.

BPI forecasts that GDP will contract 3.4% this year as a consequence of the paralysis of the Portuguese economy resulting from Covid-19, completely wiping out forecasts at the start of the year for a GDP growth of 1.7%.

The bank says it expects a recovery in the growth of the Portuguese economy by 5.9% in 2021 but stresses that tourism will probably only recover very gradually, the sector being worth 8% of GDP and 15% in terms of family consumption.

“We can see that some impact will be felt in the first quarter of 2020 with a fall in activity compared to the previous quarter (Q4 2019) because of the sudden stoppage in the past few weeks, but even so, a slight like-for-like growth,” the report states.

However, the bank forecasts that the impact will be much greater in Q2 with economic activity falling by around 15%, “With great uncertainty regarding this contraction which could be even larger”.

“In our analysis we can see that some sectors will either be at a standstill or seriously affected (around 20% of GVA (Gross Value Added), for example, those related to tourism (accommodation and hospitality), cultural activities, transport, among others; others will see their activities limited because of the State of Emergency and self-isolating at home (around 40% of GVA).

For example, the greater part of the industrial, construction and real estate sectors will also see their activities curtailed; while others which can adapt through teleworking will see their situations stabilise,” it explains.

Working on the basis that the pandemic will be brought under control by the end of April or the first weeks in May, the bank forecasts that the economy should recover substantially in the third quarter, “Wiping out some of the losses seen.”

BPI also calculates that unemployment will rise to 8.2% this year compared to the 6.4% estimated before the pandemic, falling back to 6.8% in 2021.