Hit by third COVID wave, Portugal sees 2021 deficit exceeding goal

  • Joao Leao said "an unprecedented increase in spending" to support companies and employment was behind last year's deficit of 5.7%, which came after the first surplus in at least four decades reported in 2019, of 0.1%.
  • The budget gap, however, ended 2020 below the government's initial estimate of 7.3%.
26 Mar, 2021

LISBON: The third wave of the COVID-19 pandemic is strongly impacting Portugal's economy and this year's budget deficit will exceed the government's goal of 4.3% of GDP despite a lower-than-expected gap in 2020, the finance minister said on Friday.

Joao Leao said "an unprecedented increase in spending" to support companies and employment was behind last year's deficit of 5.7%, which came after the first surplus in at least four decades reported in 2019, of 0.1%.

The budget gap, however, ended 2020 below the government's initial estimate of 7.3%.

"The pandemic is having a much stronger impact than anticipated in Portugal, which means the deficit reduction will be much smaller than we expected," Leao told reporters about this year's 4.3% target, reiterating also that this year's economic growth forecast of 5.4% would have to be revised lower.

Portugal was particularly badly hit by the third wave of the pandemic and has only now started easing strict lockdown measures imposed in mid-January to tackle what was then the world's worst coronavirus surge.

The government has reinforced support measures for companies and families in recent months, which will increase spending compared to 2020, Leao said.

Nevertheless, EU recovery funds should boost private and public investment this year and in the longer run, Leao said, expecting rising household savings to also stimulate economic growth, with the pace of recovery strengthening in the second half of the year. Last year, the economy slumped 8.5%.

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