Portugal

Investment & 
Operational
Climate

The governing’s Socialist Party (PS) strategy of steady fiscal consolidation drove Portugal to close 2019 with a historic surplus (at 0.2% of GDP) and has kept the debt/GDP ratio on a downward trend since 2014. However, entering 2020 the government estimated a 1.9% GDP growth that has mutated due to COVID-19 into a recession; Portugal’s real GDP declined by a quarterly 3.8% (seasonally and working-day adjusted) in January-March, the sharpest contraction ever recorded and the first hard evidence of the magnitude of the current economic crisis due to the pandemic. Declines in private consumption were the main drivers of lowering GDP, falling by a quarterly 2.9% in the same time period. All business confidence indicators weakened and strong reductions in trade and services were felt. The second-biggest driver of the economic contraction was exports, which fell by 7%, significantly outpacing the import contraction of 3.1%. Investment increased by 1.8%, largely due to higher spending in construction and transport equipment – sectors largely shielded from the lockdown. The crisis is expected to cause a fiscal deficit of at least 6.9% of GDP in 2020. However, the risk of a sovereign debt crisis is small and government schemes will cushion the impact on the labour market – even though the unemployment rate is likely to increase throughout the year.