Portugal facing slow recovery in different gears
A slow recovery, in several gears depending on the sector and totally held hostage to the Covid-19 pandemic. This is the prediction from economists consulted by the business daily Jornal Económico (JE) on the pace and nature of Portugal’s post-Covid economic recovery which will depend on the impact on the rest of the world.
“The recovery is going to be slow. Uncertainty has not improved and we’re seeing a localised return to lockdown in several countries,” says Susana Peralta, economist and professor at business school Nova SBE.
That opinion is shared by Paulo Rosa, a senior economist at Banco Carregosa, who explains that currently the world equity markets are ruling out a ‘V’-shaped economic recovery, but rather a deep but gradual ‘U’-shaped economic recession.
“The Portuguese economy is of the most vulnerable due to the importance and reliance on the tourism sector, and a fast recovery, as expected for the US market, may be at risk”.
“Due to social distancing, the economy is expected to run at 90% in the near future, with some sectors working at around 40%, namely hotels, long-distance travel business and leisure and tourism. As these sectors are important to the national economy, so the recovery may be slower,” he points out.
For Filipe Garcia, economist and president of IMF – Information on Financial Markets – the most likely scenario is that the pace of recovery will dovetail with what is happening in the rest of the world, and in Europe in particular.
“There is a whole range of exporting industries in Portugal, whose recovery will depend a lot on everything that happens in the rest of Europe. These sectors will be much more susceptible to a faster recovery,” he says. However, he warns that the same should not happen with other sectors. “If we look at retail and services, domestic consumption will depend a lot on the evolution of the pandemic,” he maintains.
“The tourism sector, apart from domestic tourism, is going to be very upbeat. It is clear that the recovery will be slow and it will be different for each sector. The whole tourism and services sector that depend heavily on tourism, which includes catering and tourist guides, will suffer overwhelmingly. The effects will last for several years, I have no doubts about that,” Susana Peralta says.
Paulo Rosa details that he believes that the recovery will be slower in the tourism sector and in activities related to it, such as hotels, restaurants, aviation, trips outside the region or to long haul destinations, as well as that of some exporting companies due to the worsening of commercial trade tensions and increased protectionism.
“Social distancing has accelerated the fourth technological revolution, benefiting companies that supply equipment, software and conference call applications. Online shopping is a growing reality. In the middle of the Covid-19 pandemic, the technological sector ‘came, saw and conquered’,” which, he says, is positive.
The economists heard by the JE are still unanimous in considering that the recovery of the Portuguese economy will be hostage to the possibility of a second pandemic wave. “It will depend on whether there is a second wave and in what size. This threat is absolutely fundamental,” says Filipe Garcia. “We are seeing a set of economic indicators in Europe, namely confidence, PMI, which say that the worst may be over, but, at the same time, we are seeing the stock markets becoming concerned about this second wave,” he maintains.
For Paulo Rosa, a second wave will prolong the economic recession in Portugal over time, however he considers that authorities and the Portuguese and international health systems are already better prepared to respond to this possibility.
“It will be difficult to have widespread confinement again, unless Covid-19 gets significantly worse, particularly next winter. The Portuguese authorities’ response to a hypothetical second wave, which may come in pockets, will depend on the actions of other countries, namely the European Union, and in particular those closest to them. There may be localised restrictions or even quarantines in specific areas which will not be applied universally to areas where there is no considerable presence of Covid-19 which will be able to work normally,” he says.
In this context Filipe Garcia stresses that, “Just as the pandemic caused this problem, it will be the evolution of everything related to the pandemic that will provide us with clues as to how the recovery will be”.
For Paulo Rosa, there are still sectors of the economy that are trying to adapt. “Tourism is reinventing itself in Portugal and trying to respond to changing customer behaviour, such as the growing demand for houses with a pool, as a way of maintaining social distance and preventing the spread of the new coronavirus,” he says, adding that the national hospitality sector “is re-adapting its facilities to meet social distancing norms”.
“Portuguese technology and IT companies must take advantage of social distancing to capitalise on their revenues,” he adds.