Even in a scenario of “relatively limited” impact, the central bank estimates there will be a strong recession this year, with unemployment rising to numbers above 10%. The negative effects could be prolonged. Original text by Sérgio Aníbal published on Público on Mar.26, 13:51, (updated at 14:38)
In its first projections for the economy since the shock brough on the novel coronavirus, the Bank of Portugal completely abandons previous growth forecasts, and alerts for the existence of “very significative effects that will potentially be prolonged”, and points to a deep recession this year, with a GDP reduction of 3,7% in the baseline scenario, which could be of 5,7% in a more adverse scenario.
Given what’s said to be a scenario of “exacerbated uncertainty” and “complexity”, the Bank of Portugal, unlike what normally happens, chose not to present a single forecast, presenting instead these projections for two scenarios - a baseline scenario, and an adverse scenario.
In the baseline scenario, the central bank assumes Portugal suffers what’s said to be a “relatively limited” economic impact of the pandemic, where “the measures adopted by the economical authorities are successful in the containment of damage to the economy”.
However, even in this case, the Bank of Portugal’s projection is that the economy will shrink by 3,7% this year. There will be a moderate recovery in 2021, with a growth of 0,7%, and an acceleration in 2022 with GDP growing 3,1%.
10,1% of unemployment this year
The unemployment rate will have a sharp immediate rise, and in the following years. Although a job market recovery is expected, numbers won’t be back to what they were before this crisis by 2022. The Bank of Portugal foresees that after the 6,5% registered in 2019, Portugal will have an unemployment rate of 10,1% in 2020, which will lower progressively to 9,5% in 2021, and 8% in 2022.
In the “adverse” scenario, the bank assumes “the economical impact of the pandemic will be more significative due to a more prolonged paralysation of economic activity in many countries, leading to a bigger capital destruction and loss of employment”, and it points to the existence of “more significative levels of turbulence in the financial markets”.
The bank projects this would lead Portugal’s GDP to fall to levels unseen in the last decades. The economy would register a 5,7% contraction in 2020, and it would then start recovering with a growth of 1,4% in 2021 and 3,4% in 2022. In this case, the unemployment rate would shoot up to 11,7% this year, and progressively decrease, getting to 8,3% in 2022, which is above the 6,5% of last year.
In both scenarios, the Bank of Portugal predicts that “the shock should reach its peak in the second quarter of this year, after which there could be a gradual normalization”.