Portugal: Economy enters recession in Q2, recording largest drop on record
August 31, 2020
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.”
Author: Frederico Teixeira de Abreu, Junior Economist