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Portugal sees sharper economic contraction on virus

Published on October 13, 2020

Portugal now expects its economy to shrink a record 8.5 percent this year due to the coronavirus pandemic, worse than its previous estimate of 6.9 percent, according to the government’s latest spending plans.

“Gross domestic product will see its biggest fall since the war,” the finance ministry said in a statement late Monday.

However, the economy should bounce back strongly in 2021 with growth of 5.4 percent, up from the previous estimate of 4.3 percent.

Portugal also expects to do better on the public finances, with a budget deficit — the shortfall between spending and revenue — equal to 4.3 percent of GDP in 2021 compared with 7.3 percent this year.

Unemployment should fall from 8.7 percent this year to 8.2 percent next, according to the government’s plans.

The jobless rate stood at 6.5 percent in 2019 when the government managed to eke out a historic budget surplus of 0.1 percent of GDP.

This budget surplus was the first since democratic civilian rule was established in 1974 and it had been expected the public finances would continue in the black this year.

Like all governments however, Portugal’s has been forced to spend and borrow massively in an effort to keep the economy afloat during the coronavirus crisis.