The European Commission sees GDP shrink 6.8% in 2020. Portugal grows 5.8% in 2021

The European Commission updated economic forecasts this Wednesday and figures show it is less pessimistic than the International Monetary Fund (IMF): the Portuguese economy is expected to shrink 6.8% this year, followed by a 5.8% recovery in 2021.

These figures, which are included in the spring forecasts released today, compared with the 8% fall forecast by the IMF for Portugal in 2020 and a 5% recovery next year.

The European Commission’s forecast for Portugal is more optimistic than the Eurozone average where GDP will sink 7.7% in 2020, followed by a recovery of 6.3% the following year. Among the countries that share the euro, Italy, Greece, and Spain are the countries most affected by the economic impact of the pandemic, with GDP shrinking by over 9%.

With revenue falling and expenditure rising in 2020, Portugal will move from a budget surplus in 2019, the first in democracy, to a deficit of 6.5% this year, according to European Commission forecasts. This indicator also shows Portugal better than the Eurozone average (-8.5%). In 2021, the Portuguese deficit should shrink to 1.8% and that of the Euro Zone to 3.5%, still above the red line of 3% imposed by European rules, which are currently suspended.

The sharp fall in GDP and the significant increase in the deficit in 2020 will put a strain on public debt. The public debt to GDP ratio is expected to rise from 117.7% in 2019 to 131.6% in 2020, falling again to 124.4% next year. In this indicator, Portugal remains well above the Euro Zone average: the European Commission forecasts that the public debt to GDP ratio in the Euro Zone will rise from 86% to 102.7% in 2020, falling slightly to 98.8% in 2021.

Both in the deficit and public debt, the European Commission’s forecasts are more optimistic than those of the IMF. The Fund forecasts that the deficit will rise to 7.1% and public debt to 135%.

The contraction in Portugal’s economy, particularly through the reduction in exports, will have repercussions on the Portuguese external accounts, which will go from a balance in 2019 (0% of GDP) and consecutive years of surpluses to a deficit of 0.6% in 2020 and 0.2% in 2021, according to the forecasts released today.