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The contraction registered in 2020 “is the most intense in the current series of National Accounts, reflecting the markedly adverse effects of the COVID-19 pandemic on economic activity,” says the INE.
It is the largest recession in Democracy.
Still, the result is better than the government’s forecast for last year. The Government pointed to an economic contraction of 8.5%.
The European Commission and the Public Finance Council expected a 9.3% drop in GDP, with the International Monetary Fund being more pessimistic, pointing to a 10.0% drop.
The result is also more positive than the forecasts of the most optimistic organizations. The Bank of Portugal (BdP) and the Organization for Economic Cooperation and Development (OECD) reported a drop in GDP of 8.1% and 8.4%.
Domestic demand showed a significant negative contribution to the annual variation of GDP, after having been positive in 2019, mainly due to the contraction of private consumption.
Exports had “sharp reductions”, as did imports of goods and services. From Highlight for the accounts of the year, an “unprecedented decline” in tourism exports.
GDP falls 5.9% in the fourth quarter
The INE also presented the accounts for the fourth quarter of 2020.
Net external demand had a more negative contribution in the fourth quarter, with a contraction in Exports of Goods and Services that was more intense than that observed in Imports of Goods and Services.
Compared to the third quarter of 2020, GDP increased 0.4% in volume, after the strong variations of the opposite sign in the previous quarters (-13.9% and + 13.3% in the second and third quarters, respectively).
The detailed results of the Quarterly National Accounts for the fourth quarter of 2020 will be released on February 26.
“In Portugal, despite the sharp drop in GDP, the evolution reflects an improvement compared to the forecast presented by the Government in the State Budgets for 2021 (8.5%) 2, says a statement from the Ministry of Finance, which highlights that the contraction of GDP also occurred in the euro area (6.8%), especially affecting countries where the tourism sector has more weight, such as Spain (11%), Italy (8.8%) and France (8, 3%).
The Government highlights that economic activity performed better than expected in the second half of the year, with growth of 5.1% compared to the first half.
In year-on-year terms, GDP contracted 5.7% in the third quarter and 5.9% in the fourth quarter. “This forecast is in line with the dynamics of economic activity in the last months of 2020,” says the Ministry supervised by João Leão, referring, for example, to the increase in withdrawals at ATMs.
“The more favorable performance of the economic activity than expected is also reflected in the labor market. The unemployment rate in 2020 is expected to be substantially below the forecast in October (8.7%), ”he says.
The executive recalls that in December, the total number of unemployed was 2.4% lower than that verified at the peak in May (minus 9,354 unemployed).
The dynamism of economic activity, in the second semester of the year, also had positive effects on tax collection, and it is expected that the year will end tax collection “substantially higher than expected in both the Supplementary Budget for June and the Budget of the State for 2021 “.
Finance warns, however, that the new generalized confinement at the beginning of the year will have negative effects on economic activity in the first months of the year, which will imply a less favorable annual evolution than previously expected.
The executive recalls measures to support workers and companies that he implemented, such as simplified dismissal for companies with closed activities, with the payment of 100% of the worker’s salary, support for progressive resumption, simplified support for micro-enterprises, Support program, support for non-housing rents, extraordinary support for workers’ income and extension of unemployment benefits.
