The OECD has revised upwards the growth of the Portuguese economy this year from the 1.7%, estimated in December, to 3.7%. In 2022, GDP accelerates to 4.9%, exceeding the pre-crisis value.
In December, the Organisation for Economic Cooperation and Development (OECD) released one of the most pessimistic scenarios for the Portuguese economy in 2021 and 2022. Six months later, with a significant part of the population already vaccinated and the recovery underway, the latest Economic Outlook revises GDP growth upwards in 2021 from 1.7% to 3.7%, as well as in 2022 from 1.9% to 4.9%. Next year, the economy will be recovered from the pandemic.
The OECD expects a “strengthening” of consumption, accompanied by a “gradual reduction” in the savings rate, as the epidemiological situation improves and containment measures are withdrawn.
In addition to domestic consumption, “strong activity” in the industrial sector and the absorption of European funds will give a boost to investment and exports. Recovery will be more “gradual” in the case of services with greater personal contact, such as tourism, predicting a full recovery only when the pandemic is “fully within control”.
However, the OECD warns of a possible rise in business bankruptcies, “notably when the public moratorium will end” (in September), which “could weigh on investment and credit supply by increasing non-performing loans.”
On fiscal policy, the OECD expects it to remain expansionary until the recovery is “firmly underway”, but recommends that the financing instruments “should be put in place to support credit-constrained but viable firms”. In terms of forecasts, the OECD sees the deficit moving from 5.7% of GDP in 2020 to 4.8% of GDP in 2021, a much smaller reduction than previously planned. In 2022, the Organisation expects the deficit to remain above 3% (3.4%).
These budget deficits will continue to impact public debt, but there will still be a reduction in their weight in the GDP as the economy grows significantly. The OECD forecast sees public debt at 133.4% of GDP in 2021, just two-tenths below the 133.6% of GDP recorded in 2020, which contrasts with the government’s expectation to reduce debt to 128% of GDP this year. In 2022, the OECD sees debt at 130.2% of GDP.
Regarding the labour market, which has been “resilient”, the OECD is in line with the forecasts of other institutions in predicting an increase in the unemployment rate to 7.4% in 2021 and a reduction to 7% in 2022.