The government said on Tuesday that the economy was in the second half of 2020 "better than previously anticipated" after an official estimate pointed to a 7.6% decline in GDP.
Portugal’s Ministry of Finance said on Tuesday that the economy was in the second half of 2020 “better than previously anticipated” after an official estimate pointed to a 7.6% decline in gross domestic product, better than government forecasts.
However, the ministry anticipates that “the new general lockdown, decreed in early 2021, will have negative effects on economic activity in the first months of the year,” resulting in “a less favorable annual evolution than previously anticipated” in 2021.
“Economic activity performed better than previously anticipated in the second half of the year, with growth of 5.1% compared to the first half,” noted the ministry in a statement sent to the media, after the National Statistics Institute (INE) released a flash estimate of 2020 GDP that showed it down 7.6% on 2019.
The ministry statement also stresses that “despite the sharp fall in GDP, the evolution reflects an improvement over the forecast presented by the government in the State Budget for 2021” of a decline of 8.5%.
It also points out that “the contraction of GDP in the euro zone was also very sharp, at 6.8%, particularly affecting countries where the tourism sector has the most weight, such as Spain (whose GDP shrank an estimated 11%), Italy (down 8.8%) and France (down 8.3%)” – that is, all larger falls than Portugal.
In the second half of the year “purchases and withdrawals by Multibanco [ATM], for example, increased by 20.3% in the second half compared to the first [and] electricity consumption also performed favourably, with an increase of 1.2% in December,” the statement notes.
According to the ministry, the partial recovery of economic activity in the second half of 2020 “also had positive effects on tax revenue”, which should “be substantially above what was foreseen in both the June Supplementary Budget and the 2021 State Budget”, with revenue from personal income tax (IRS) up despite the pandemic.
Portugal’s GDP contracted 7.6% in 2020, with Q4 GDP shrinking by 0.4% on Q3 and by 5.9% on a year earlier, according to a flash estimate released earlier by the INE, which cited “the markedly adverse effects of the Covid-19 pandemic on economic activity.”
Domestic demand, which had risen in 2019, “made a significant negative contribution to the annual change in GDP [in 2020] mainly due to the contraction of private consumption.”
Net external demand also made a “more negative” contribution than in 2020, with strong reductions in exports and imports of goods and services, with a particular emphasis on the “unprecedented” decrease in tourism.
In Q3 2020, GDP had been down 5.7% on the year.