UPDATE 1-Portugal headed for recession, says central bank

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By Sergio Goncalves and Catarina Demony

LISBON, March 26 (Reuters) – Portugal’s economy will enter a recession this year as the coronavirus outbreak hits private consumption and investment, and its export sector will collapse, the central bank said on Thursday.

Portugal has 3,544 confirmed cases of coronavirus, with 60 reported deaths, far below other southern European countries such as Italy and Spain.

In its economic bulletin, the first data set showing the impact the fast-spreading coronavirus will have on Portugal’s economy, the Bank of Portugal said gross domestic product will drop between 3.7% and 5.7% in 2020. Last year the economy grew 2.2%.

Private consumption is set to fall 2.8% and 4.8% and exports will decrease 12.1% and 19.1% this year, according to the bulletin. Private investment will drop between 10.8% and 14.9%.

The unemployment rate is set to increase to between 10.1% and 11.7% this year, compared to 6.6% in 2019.

“The outlook for the Portuguese economy deteriorated sharply and significantly as a result of the impact of the Covid-19 pandemic,” the Bank of Portugal said in a statement, adding the outbreak will have “very significant and potentially long-lasting effects”.

Portugal declared a state of emergency on March 18, which meant the closure of non-essential businesses, a measure affecting thousands of jobs across the country.

The government also announced a 9.2 billion euro ($9.98 billion) package worth 4.3% of annual GDP to support workers and provide liquidity for companies affected by the outbreak.

Boosted by the exports sector, the tourism industry and private investment, Portugal’s economy has been steadily growing since 2014, when the country exited a strict bailout programme following the 2008 financial crisis.

On Wednesday Portugal reported a budget surplus of 0.2% of gross domestic product in 2019 – its first in 45 years of the country’s democratic history – after a deficit of 0.4% in 2018.

That day Finance Minister Mario Centeno said all scenarios pointed to an economic recession due to the impact of the coronavirus and restrictive measures implemented to stem the pandemic. (Reporting by Sergio Goncalves and Catarina Demony Editing by Raissa Kasolowsky)

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