Portugal has managed to successfully curb the spread of the novel coronavirus, logging 1,218 deaths as of Monday – one of the lowest fatality rates in the eurozone. Meanwhile, the International Monetary Fund (IMF) has predicted the country will suffer an economic contraction of 8 percent this year, a drop steeper than the European Commission’s forecast of 6.8 percent. Unemployment is expected to more than double, rising to almost 14 percent. With the nation’s lockdown having commenced on March 18; between then and the end of April, a total of 91,500 individuals registered as unemployed, bringing the number up to a staggering 370,000. But with summer on its way, Portugal hopes it will be able to pull off a rapid economic recovery as soon as it is safe to re-open.
“Now that we have managed to contain the expansion of the pandemic without killing the economy, it is essential to revive the economy without letting the pandemic get out of control,” said Prime Minister Antonio Costa in a statement last week.
The country began the implementation of its three-phase plan, which entails opening different sectors of the economy every 15 days, on May 4. Small neighbourhood shops opened first, along with hairdressers, car dealerships, and bookstores. Tourism and exports – two of the industries that helped Portugal recover quickly from the sovereign debt crisis in 2014 – will be slower to recover. The National Statistics Institute (INE) has shown that more than 27 percent of Portugal’s companies, primarily in the hospitality and restaurant sectors, have reported damage to their revenues resulting from the pandemic-induced lockdown.
Exports fell by 13 percent in March following a 1 percent rise in February, before the pandemic forced a massive economic shutdown. The slump is primarily credited to a major drop in the export of cars and auto parts to Portugal’s main markets, Spain and France, by more than one-third. Food and beverage exports have risen, but only by a mere 4 percent. In the first quarter of 2020, exports slipped 3 percent and imports fell by 4 percent, bringing the deficit down 7 percent to 4.65 billion euros.
The Bad News…
Reviving the economy is proving to be easier said than done. According to a recently released study by the National School of Public Health, 1 in every 4 Portuguese with an income of 650 euros per month or less has seen all their savings and income wiped out by the pandemic and subsequent lockdown. The study surveyed approximately 4,000 people. In comparison, only 6 percent of those with a monthly household income of 2,500 euros or more experienced similar financial decimation. “Economic consequences of illness and confinement, such as unemployment or less income sources, can disproportionately affect the most vulnerable groups,” read the study. These individuals also often have jobs that cannot be undertaken remotely, increasing their likelihood of exposure to the disease.
To limit the pain, Portugal’s prime minister stated last week that 5 billion euros of state-backed loans have been approved to help businesses weather the financial crisis. This comes after last month’s state-backed credit lines were expanded to 13 billion euros with a go-ahead from the European Commission. “Until now we have approved guarantees of more than 5 billion euros and we are now reaching the maximum limit (of the 6.2 billion of credit lines available),” Costa said at a news conference. “It was very easy to close and it is very difficult now to reopen. In this time of uncertainty, we have to move on with our lives, with all our (economic) activities.” He added that Portugal is seeking solidarity from the rest of Europe: “We need Europe to help all the European economies to resume.”
…And the Good News
Portugal is expected to weather the oncoming economic crisis only slightly better than its neighbours but to recover the fastest. According to Público, this is due to “a relatively reduced package of anti-crisis measures in place, and an economy that is projected to resist the crisis better than the average for the eurozone.” Meanwhile, experts anticipate that investment will fall across the board for all European countries, but dive comparatively less in Portugal.
The IMF, the EU Commission, and the Bank of Portugal predict that 2021 will reveal better days. And despite the economic contraction, the country’s trade deficit shrank by nearly 9 percent as imports fell at a steeper rate than exports. Last year, Portugal’s economy grew by 2.2 percent, with the government reporting a budget surplus of 0.2 percent – its first in 45 years.
While the surplus is not enough to prevent this year’s financial pain, it does bode well for the nation’s overall stability. Portuguese Finance Minister Mario Centeno believes that the EU will come together to beat the economic crisis, with the 1 trillion euro European Recovery Fund – that is currently being negotiated – which will be essential in the endeavour. “I have no doubt there will be an agreement,” Centeno said. “It will be a lasting commitment. The key is to stretch these costs over time.”
Many companies are not expected to survive the economic pain wrought by the pandemic. However the Bank of Portugal predicted in its most recent economic bulletin that the government’s measures – suspending social security payments and assuming 70 percent of salary costs for businesses forced to close their doors – would help to offset some of the worst of the economic shock. These initiatives seek to better position Portugal in the hope that the country experiences faster recovery than some of its neighbours.
The government has extended protections by widening the social security net to microenterprises, informal workers, and freelancers. “To informal workers, independent workers, we say we are here to support you. This is the moment to formalise your participation in public life,” Costa said.
Meanwhile, the Bank of Portugal has postponed an increase in capital buffers for some banks for one year, as part of its coronavirus response, with the approval of the European Central Bank. “The Bank of Portugal intends to use all available policy instruments to prevent the banking system from acting as an amplifying channel of the shock triggered by the outbreak,” the institution said in a statement. Many of the banks have also halted loan repayments, totalling 19 billion euros, for the next six months to help ease the financial pain of those hardest hit during the lockdown. However if the loan forbearance is extended, non-performing and bad loans will rise.
Open for Business?
Portugal hopes to open for tourism as early as June and make the most of what would normally be a profitable summer season. Joao Fernandes, head of the Algarve regional tourism board, is banking on the return of travellers once restrictions are lifted, albeit “not as many as in previous years, but tourists will be coming back”.
“We are also working on a special manual for the tourism industry which will make sure distancing rules and other requirements are observed,” he added. “We cannot and will not watch every tourist with their own personal police officers on the beach,” Fernandes said, stating all the government can actually do is “appeal to people’s sense of responsibility”.
State-run tourism agency Turismo de Portugal has introduced a hygiene label set to be awarded to those who meet government-controlled standards. The board is also planning to hand out a special traveller’s pass allowing visitors to get tested for COVID-19 even before they begin their holidays and avoid potential quarantine. A strict timetable for reopening beaches has yet to manifest, however, and it is not clear how tourists will be able to adhere to social distancing measures once in the country. How people will be able to travel in rental cars and boats, as well as who will have final oversight on all such measures, remains to be seen.
And while sports betting is down as events are cancelled, online betting overall has risen 50 percent, which might be linked to the fact that six additional licenses were issued to game operators. The Ministry of Economy and Digital Transition announced in a statement earlier this month that the data collected by the Game Regulation and Inspection Service of Turismo de Portugal (SRIJ) indicates that operators “show interest in offering games in Portugal in a legal and regulated manner and players are increasingly favouring betting on secure sites that inspire more confidence”.
The statement noted that the boost in online gaming may be the natural result of quarantine. “At the present time, the demand for online games can also result from the fact that confinement leads to a need to find substitute forms of entertainment and leisure which, in itself, is not likely to motivate unruly practices or an increase exponential risk of addiction.”
Portugal also hopes to use the post-coronavirus recovery period to become a major industrial centre. On May 7, Foreign Affairs Minister Augusto Silva laid out his idea to boost the country’s industry, saying “The first axis (of this strategy) is that Portugal means to be at the forefront of Europe’s re-industrialisation and put its enormous capacities in industrial matters at the service of Europe. We’re talking about textiles, clothing, shoes but also engineering, pharmaceuticals, agrifoods”.