Portugal: GDP records largest drop on record in Q2 on Covid-19 impact
According to preliminary estimates, 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 marks the sharpest contraction on record. Accordingly, GDP contracted 16.3% on an annual basis, also the worst performance on record (Q2 2020: -2.3% year-on-year).
The press release indicated that downbeat domestic demand drove the result, as private consumption and investment collapsed on lockdown measures and resulting uncertainty. Moreover, the export sector was severely hit as pandemic fears took their toll on the vital tourism sector.
More detailed data is to be released on 31 August.
Although the easing of restrictions 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 plunge, leading the downfall. Moreover, the external sector will take a hit from fewer tourist arrivals.
Commenting on the outlook, Maddalena Martini, economist at Oxford Economics, stated:
“The risks remain tilted to the downside, with concerns about the long-lasting consequences of the disruption to the economy and considerable uncertainty about the recovery prospects of the tourism sector, reflecting both the number of coronavirus cases in Portugal and the new outbreaks of the virus across the world.”