Pandemic worsens budget deficit to 4.9% of GDP by September

  • ECO News
  • 23 December 2020

In Q3, the deficit was 3.8% of GDP. Between January and September, the deficit is at 4.9% of GDP. The government's target for the whole year is 7.3%.

Portugal’s budget deficit stood at 4.9% of GDP by September. Isolating Q3, the deficit was 3.8% of GDP. The data were released this Wednesday by the National Statistics Institute (INE) and show the impact of the pandemic crisis on public accounts.

The deterioration in public finances is largely attributable to the pandemic, with capital transfers to Novo Banco and the 1.2 billion euros loan to TAP that INE accounts for in the deficit.

In Q2, the deficit rose to 10.5% of GDP, the highest quarterly figure since the BES intervention in the summer of 2014, which brought the deficit in that quarter to 16%. For H1, the deficit was 5.4% of GDP. The government target for the year as a whole is 7.3% of GDP.

Although the deficit until September will be below the annual target, the impact of the second wave of infections and restrictions in the fourth quarter remains to be seen to draw conclusions for the year as a whole. Although economists anticipate a much smaller impact than in Q2, it is expected that this period will lead to a further fall in government revenue and an increase in expenditure.

Looking only at Q3, the budget deficit was -1,975.6 million euros, or -3.8% of GDP, compared to a surplus of 4.4% in the same quarter last year. “In year-on-year terms, there was an increase in total expenditure (+8.3%) and a decrease in total revenue (-9.5%),” INE said. Compared with Q2, there was an improvement in the deficit from 10.5% to 3.8%.