Portugal: Economy enters recession in Q2, recording largest drop on record
A second GDP estimate released by the National Statistics Institute on 31 August showed the economy shrank 13.9% in seasonally-adjusted quarter-on-quarter terms in Q2, amid Covid-19 containment measures, after contracting 3.8% in Q1. The reading confirms the preliminary estimate and marks the sharpest contraction on record. In annual terms, GDP contracted 16.3% in Q2, which was also the worst performance on record (Q1: -2.3% year-on-year).
On the domestic front, the print showed that private consumption plummeted 14.0% in Q2 (Q1: -2.9% s.a. qoq), fixed investment fell 8.9% (Q1: +1.5% s.a. qoq) and government consumption dropped 3.6% (Q1: -0.8% s.a. qoq). Together, these values marked a sharp contraction in domestic demand. Externally, exports led the fall with a contraction of 36.1% (Q1: -7.3% s.a. qoq), while imports shrank 28.1% (Q1: -3.7% s.a. qoq).
Although the easing of restrictions since late-May should provide some recovery momentum for the remainder of the year, a severe contraction for 2020 as a whole now seems inevitable. Fixed investment is set to lead the downfall, plunging on heightened uncertainty. Moreover, the external sector will take a hit from fewer tourist arrivals.
Commenting on the outlook, Maddalena Martini, an economist at Oxford Economics, stated:
“The risks remain tilted to the downside, with concerns about the long-lasting consequences of the pandemic to the economy and considerable uncertainty about the recovery prospects of the tourism sector, because of the worsening trend in coronavirus cases all across Europe.”