Bank of Portugal says GDP will fall between 9.5% and 13.1% in 2020

Portugal’s central bank has released a more pessimistic forecast for the Portuguese economy than Government projections for the second half of 2020.

The institution led by Carlos Costa who leaves next month, forecasts a fall in GDP followed by a recovery of 5.2% in 2021 and 3.8% in 2022.
The latest projections were published in the bank’s June Bulletin with the GDP for March at -5.3% and the forecast for June seeing the economy falling by 9.5%, more than the 6.9% estimated by the Government.
In the worse case scenario, the Bank of Portugal suggests that Portugal’s GDP could plummet by 13.1% by the end of the year.
The downward review in forecasts is down to developments in recent months which have been more negative than had been expected at the beginning of March.
“In 2020, the Portuguese economy will likely contact sharply within the context of contractions in the world’s GDP and in international commerce by rates only comparable to those seen in the Great Depression of 1929,” forecasts the Bank of Portugal.
The forecast of a 9.5% fall in GDP is based on the presupposition that the virus will be kept under relative control with a progressive easing up of confinement measures.
The macroeconomic scenario from the central bank in a joint analysis with the Euro Zone central banks, forecasts that the main negative contribution to GDP contraction will come from the slump in overseas demand (-6.2 percentage points), in other words, the difference between exports — which in 2020 will have fallen by 25.3% — and imports.
“The fall in exports mainly reflects a sharp fall in service exports associated with tourism,” states the BdP, anticipating that the balance of goods and services will be in the red in 2020 for the first time since 2011.
Internal demand will also fall 3.2 percentage points reflected not only by the impact in the fall of private consumption (-8.9%) and a fall in available income, but also an increase in savings as a precaution.
“The savings rate should increase substantially in 2020, reflecting a fall off in the purchase and consumption of some goods and services during lockdown and the prevalent level of public uncertainty.”
The fall in domestic demand went hand in hand with a fall in private investment, particularly company investments and partially offset by an expected larger public investment and greater spending on public health increasing public consumption by 0.6%.