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GDP recovers to pre-pandemic level in 2022, tourism in 2023 but debt only there for 2026

The Councilthe Public Finance (CFP) released this Wednesday its macroeconomic and budgetary projections for the period 2021-2025.

It is a scenario of economic recovery that excludes any confinement from the second half of 2021 nor does it incorporate the impetus of European funds and new additional measures beyond those already known in the State Budget for 2021.

Macro scenario

Even without counting new measures to stimulate the recovery on the part of the Portuguese government and the European Union, the gross domestic product (GDP) is expected to grow 3.3% in 2021 and 4.9% in 2022 compared to a contraction of 7.6 % in 2020. “In this scenario, the Portuguese economy recovers in 2022 the level of real pre-pandemic GDP (2019)”, projects the CFP.

Households are expected to consume an additional 2.7% in 2021 and 6% in 2022, after falling 5.9% in 2020. “The gradual acceleration of private consumption until 2022 reflects the realization of deferred consumption during periods of confinement” although , for 2021, “some additional savings for reasons of precaution due to the high uncertainty in the conjuncture” are still admitted.

Sales of goods and services abroad are expected to increase 8.9% in 2021 and 11.3% in 2022 after the collapse of 18.6% in 2020. “The recovery in exports is expected to accompany the recovery in external demand directed at Portugal, with market share gains until 2023. More modest dynamics are expected in the recovery of service exports, associated with a more adverse situation in the tourism sector, in the perspective of the prevalence of restrictions on international travel in the short term ”.

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The main export chain should only recover in two years. “It is expected that the demand for services associated with tourism will be normalized only in 2023, the year in which total exports in volume recover the level of 2019”, predicts the CFP.

The unemployment rate is expected to rise from 6.8% in 2020 to 8.3% in 2021. For 2022, the pace of job creation is expected to resume and the downward trend in the unemployment rate to 7.3% will begin. in 2022 and 6.5% by 2024. “The slow recovery of employment should reflect, on the one hand, the negative impact of the health crisis on the evolution expected for the sectors most exposed to personal contacts, such as hotels, restaurants, tourism and recreational activities linked to sport and entertainment and, on the other hand, the mitigating effect of measures to support economic activity, in particular the simplified lay-off regime, support for self-employed workers and the use of teleworking ”, explains the CFP.

As for the cost of living, the CFP also estimates an increase in inflation from -0.1% in 2020 to 1.7% in 2024.

Budgetary scenario

The reduction of the budget deficit will depend on this recovery of the Portuguese economy, but also on the speed of the reversal of fiscal policy measures in response to COVID-19.

In the scenario of invariant policies of the CFP, the budget deficit will be able to shrink, as a percentage of GDP, from 5.7% in 2020 to 4.1% in 2021, 2.1% in 2022 and 1.5% in 2025. anticipating new budget surpluses in the short to medium term.

For 2021, the CFP remembers several additional revenues foreseen in the OE 2021 such as European funds under the REACT-EU initiative (€ 1020 million), the first part of the receipts associated with the Recovery and Resilience Plan (€ 500 million), the return the commission paid to the European Financial Stabilization Fund (€ 1088 million) and the recovery of the remaining amount related to the BPP guarantee (€ 71 million).

However, for the period 2022-2025, the impacts of European funds receivable from the PRR or Portugal 2030 were not included because the projects, the annual schedule and the respective allocation by expense item are unknown. These grants will increase the levels of public revenue and expenditure, but are expected to have a zero impact on the budget balance given the principle of neutrality of Community funds.

The CFP expects the debt ratio to resume a downward trend this year, decreasing from 133.6% in 2020 to 131.5% of GDP in 2021, 125.1% in 2022 and up to 117.1% in 2025.

However, even in this last year of the projection exercise, public debt will still be at a slightly higher level than the pre-pandemic period as the public debt ratio was 116.8% of GDP in 2019.

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