OECD forecasts GDP drop of 8.4% for 2020

The Organisation for Economic Cooperation and Development (OECD) has up-ticked its forecasts for Portugal’s economic performance in its Economic Outlook published on Tuesday.

The institution forecasts an annual GDP tumble of 8.4% in 2020, but better than the fall of 9.4% that it had predicted in June, and slightly better than the Portuguese government’s forecast. (-8.5%).
Despite the forecast improvement for 2020, it wasn’t all a bed of roses for Portugal from the OECD.
According to its predictions, Portugal’s growth will be 1.7% in 2021, significantly below the 5.4% growth forecast by the government.
The organisation explains that the recovery in 2021 will come mainly from increased consumer spending that has been largely repressed over the past nine months.
A more marked recovery in the economy will only come much later, with the recovery of the sectors most affected such as tourism, restaurants and bars, events, catering, the hotel and guest house sectors, exports, car and car parts production and retail as a whole, assuming that the vaccines currently being tested or delivered are effective.
Portugal’s GDP will, however, be below pre-crisis levels until the end of 2022 due to the long-lasting effects of the pandemic on the production levels the economy.
The expectation from the OECD is that business recovery will only recover because of historically low interest rates in government and company borrowing, and boosted by European Union emergency funds, of which Portugal is in line to receive €54Bn.
It is a more pessimistic scenario than the current forecasts, but the OECD warns of a much slower recovery if tourism and commercial partners do not recover by as much as anticipated.
“Weak growth could also be exacerbated in the financial sector because of a significant expected increase in loans defaults in the sectors most affected,” warns the OECD, emphasising too the “additional weight” of State borrowing of between €2.4Bn and €2.6Bn per month during the pandemic (Portugal’s accumulated debt now stands at €267Bn) that Portugal will have to shoulder from the contingency responsibilities from government guarantees given to companies via the Covid-19 credit lines.
On the other hand, the scenario night be better in other ways because of an effective and timely reaction to the Covid-19 crisis and if EU funds arrive in time and are used prudently.