Portugal: Central bank expects unemployment above 10pct in 2020

Portugal’s unemployment rate is expected to rise above 10% in 2020, following the Covid-19 pandemic, according to the base and adverse scenarios projected by the Economic Bulletin of Bank of Portugal, released today.

In the baseline scenario, the central bank projections point to an unemployment rate of 10.1% in 2020, with a progressive decline to 9.5% in 2021 and 8.0% in 2022.

“The contraction of economic activity in 2020 is reflected in job destruction, with a projected reduction in employment of 3.5% (after growth of 0.8% in 2019)”, according to the baseline scenario.

The central bank warns that in the baseline scenario “the projected evolution towards unemployment depends crucially on the configuration and magnitude of policy measures that can be implemented immediately”.

“Compensation per employee is expected to decelerate in 2020 – mainly reflecting the impact of increased sick leave and family assistance – and to recover in 2021-22”.

In the adverse scenario, the unemployment rate ‘soars’ to 11.7% this year, falling to 10.7% in 2021 and 8.3% in 2022.

“Both scenarios envisage a recession of the Portuguese economy in 2020, differing in the magnitude of the economic impact of the pandemic worldwide”, can also be read in the document.

In 2019, the unemployment rate was 6.5%, according to Statistics Portugal.

According to the Bank of Portugal, “the scenarios seek to take into account the potential impact of policies already adopted by national and European authorities in the face of the shock”, with the central bank warning that “the magnitude of the recession and the profile of the subsequent recovery depends critically on the policy response, which has been successively strengthened at national and global levels”.

The Bank of Portugal estimates that the Portuguese Gross Domestic Product (GDP) will fall 3.7% in a baseline scenario and 5.7% in an adverse scenario in 2020, due to the Covid-19 pandemic, according to the Economic Bulletin released today.

“In the baseline scenario, it is estimated a reduction of 3.7% of real GDP in 2020. The economic impact of the pandemic is assumed to be relatively limited, which is partly due to the assumption that the measures adopted by the economic authorities are successful in containing the damage to the economy”, the Bank of Portugal communiqué said.

However, in the adverse scenario, “the economic impact of the pandemic is assumed to be more significant due to the longer paralysis of economic activity in several countries, leading to greater capital destruction and loss of employment. This scenario also considers greater uncertainty and more significant levels of turbulence in the financial markets”, with the recession cutting 5.7% of GDP.