**This article is continuously updated with the latest developments.
The Portuguese economy could fall by 12% in 2020, according to estimates in the preliminary version of the economic recovery plan drafted by António Costa Silva, a government consultant.
The 120-page document entitled ‘Strategic Vision for Portugal’s economic and social recovery plan 2020-2030’, which puts forward proposals for various sectors and takes into account the effects of the COVID-19 crisis, Costa Silva points out that Portugal “could face one of the worst crises in its history”.
Costa Silva also warns that “from September onwards, the situation of many companies may deteriorate significantly”, adding that it is “fundamental to have an aggressive programme on the ground to avoid the collapse of profitable companies”.
For the Lisbon region, restrictions will remain for another two weeks as of Monday (13 July) despite the “downward trend” in the number of new virus infections, the Portuguese government announced.
Meanwhile, the Portuguese government announced on 2 July that it had reached an agreement with the private shareholders of its national flag carrier, TAP.
The government offered €55 million in return for which it will hold 72.5% of the company’s capital compared to the current 50%. “In order to avoid the collapse of the company, the government chose to reach an agreement for €55 million,” said Finance Minister, João Leão in a joint press conference with Infrastructure and Housing Minister Pedro Nuno Santos.
The government, led by Prime Minister António Costa, also approved on Thursday a resolution recognizing the public interest underlying the operation to support TAP with up to €1.2 billion.
This comes after the Portuguese government said it will have to nationalise national flag carrier TAP after the state’s proposal for a loan of up to €1.2 billion with conditions had been rejected on 29 June by the company’s board of directors.
The proposed contract for the loan will still be submitted to the private partner, Atlantic Gateway, whose representatives abstained from voting on the board of directors.
“If the partner does not accept the conditions of the Portuguese state, we will have to intervene in the company, nationalise the company, yes,” said Infrastructure Minister Pedro Nuno Santos. The Portuguese airline posted losses of €395 million in this year’s first quarter as it was heavily impacted by the COVID-19 pandemic.
As of Thursday (16 July), Portugal had reported a total of 47,426 confirmed COVID-19 cases, which is 375 more than the day before. The country also reported a total of 1,676 deaths.
COVID-19 not a major disruption despite new infections
The COVID-19 situation in Portugal is still a long way from causing major disruption and crisis in Portugal’s national health service, authorities said on Wednesday (24 June). This despite there being a series of new infections.
The Lisbon region has imposed new containment measures as of today (23 June) because it has seen an increase in COVID-19 cases, punishing those who disobey social restriction rules with up to one year in prison.
Of the 259 new cases registered yesterday, 63% were in the Lisbon region.
Gatherings of more than ten people and the general closure of stores at 8pm except for restaurants are among the main reimposed restrictions.
This comes after new series of restrictions were lifted in the Lisbon Metropolitan Area on 15 June as part of the third phase of easing lockdown measures, despite the growing number of new infections. While shopping centres were allowed to open, groups of up to 20 people were permitted to gather.
The land border between Portugal and Spain, which was closed since 16 March due to the COVID-19 pandemic, opened on 1 July at the request of the Portuguese authorities, despite Spain reopening its borders with other countries on 21 June.
The symbolic ceremony, which marked the return of the so-called ‘new normal’, was celebrated in the border towns of Badajoz (Spain) and Elvas (Portugal), was presided over by Spain’s King Felipe VI and attended by Socialist Prime Minister Pedro Sánchez, Portuguese President Marcelo Rebelo de Sousa and Portuguese Prime Minister António Costa.
The reopening of the border will be marked by a ceremony attended by the heads of state and government of the two countries. Portugal will also maintain its ban on flights coming from non-EU countries until the end of June.
The land borders between Portugal and Spain, which have been closed since 16 March, were supposed to reopen first on 14 May and then 15 June. Commercial flights between the two countries will also remain suspended.
Portugal renews state of calamity until the end of June
The Lisbon Metropolitan Area will no longer have any lockdown restrictions from Monday (15 June) onwards and can open shopping centres and Citizens’ Shops, Prime Minister António Costa announced on Tuesday (9 June).
The Region has been particularly affected during the last few days. Of the 310 positive COVID-19 cases registered on Wednesday (10 June), 283 were identified in the Lisbon Metropolitan Area, which corresponds to 91,3% of all new cases.
Meanwhile, the Portuguese PM has announced that the state of calamity in the country will continue until the end of June due to holidays, popular saint’s celebrations and the reopening of air borders.
Shopping centres, concert halls, cinemas, gymnasiums, swimming pools and Citizen’s shops reopened on 1 June, ending the “civic duty of home collection” due to COVID-19, in the third phase of the deconfinement plan, which was originally announced 29 May.
On 29 May, the Portuguese Council of Ministers extended the state of calamity which was supposed to end on 31 May for another 15 days until 14 June. After, the state of calamity was renewed on 9 June until the end of the month, due to holidays, popular saint’s celebrations and the reopening of air borders.
Portugal was on its second phase of easing the lockdown since 18 May with cafes, restaurants, shops and some schools reopening. Visits to retirement homes are allowed again.
“The first containment measures taken 15 days ago and which came into force at the beginning of this month did not alter the trend of control” of the spread of the new coronavirus that causes COVID-19, Prime Minister António Costa said on 15 May.
After a six-week state of emergency, Portugal began to ease lockdown measures on 4 May. This comes after the Portuguese cabinet approved a plan on 30 April for transitioning from the state of emergency, which ended on 2 May.
President Marcelo Rebelo de Sousa had predicted on 15 April that if containing the spread of COVID-19 in April goes as expected, May could be a “transition month” for a “progressive recovery of social and economic life”.
While shops smaller than 200 square metres and hairdressers were allowed to reopen, face masks in shops and on public transport have now become mandatory with fines going up to €350. People are encouraged to work remotely wherever possible.
Larger shops will reopen in the second and third phases of the plan, and museums, bars, and restaurants will be allowed to resume activity from 18 May as well.
While high schools will reopen on 18 May, younger children will continue with homeschooling and online learning until the end of the academic year.
More on Portugal’s coronavirus restrictions:
- Europe’s south says common exit plan needed to save tourism
- Portuguese workers leave home to celebrate coronavirus-style Labour Day
- EU Comission chief is now positive about ‘smart’ summer holidays
- Portuguese president on lockdown as coronavirus spreads across Europe
- Portugal’s coronavirus cases grow, half a million workers at risk of lay off
Economic downturn and state aid
Portugal’s political parties are calling for more support for businesses and better wages as a response to the crisis caused by COVID-19. The government is to present a supplementary state budget to parliament containing a package of investments in various areas.
Prime Minister António Costa had already announced that the programme of “social and economic stabilisation” for the country was to have four pillars. These include “de-bureaucratising investment” on the part of municipalities and companies; businesses; employment; and responding to the “social dimension of the crisis, and will involve continuing to strengthen the National Health Service and public schooling.”
Previously, to weather the economic storm following the lockdown, Portugal’s government asked the European Commission for authorisation to approve new credit lines worth €7 billion to support companies faced with the COVID-19 pandemic at the end of March.
The country’s central bank had, again, waived the need for banks to build up counter-cyclical reserves in the second quarter of this year.
According to the government’s stability programme for 2020 approved on 7 May by the cabinet and delivered to the parliament, retail trade, restaurants, and housing in Portugal account for about half of the negative impact of 6.5% points on annual GDP every 30 working days of confinement, according to the Portuguese government.
The document added that “of these figures, it should be noted that 38% of the 95,000 companies applying for the simplified lay-off procedure are catering, accommodation, and retail companies.”
The International Monetary Fund (IMF) forecasts a recession of 8% for the Portuguese economy and an unemployment rate of 13.9% in 2020 in its report published on 13 April. In 2019, GDP growth was 2.2% and the unemployment rate was 6.5%.
According to IMF estimates published on 15 April, Portugal’s public debt is set to be the equivalent of 135% of the country’s GDP by the end of 2020.
Whereas Portugal had been projected to have a budget surplus of 0.2% of GDP this year – as pencilled into the state budget approved by parliament – it is now likely to have a deficit of around 7.1%, according to the IMF, which sees the deficit shrinking to 1.9% next year.
Meanwhile, Finance Minister Mario Centeno warned that the year-on-year fall in the second quarter will be “certainly four to five times” lower than the biggest GDP drop for one quarter, which was 4.3% in 2012.
A previous report, published on 4 April, wrote that almost 32,000 Portuguese companies with a total of 552,000 workers had applied for the simplified ‘lay-off’, a mechanism to safeguard jobs put in place to support companies during the COVID-19 pandemic. By mid-April, more than 930,000 workers in Portugal have been ‘laid off’.
For more on the country’s economic measures, click here:
- LISBON – 32,000 companies have applied for the “lay-off” mechanism
- Portugal, Spain, Italy call for common EU minimum income
TAP – a case for nationalisation?
Portuguese flag carrier TAP announced on 31 March that it would temporarily lay off 90% of its employees and reduce the normal working period by 20% for those remaining as the consequences of the COVID-19 crisis have severely hit the company.
The flag carrier reached out to the state on 16 April, hoping it would help, after which Prime Minister António Costa said the government had not ruled out the nationalisation of TAP.
On 28 April, the airline decided to extend for 30 days the period during which a large part of the workforce is temporarily laid off until 31 May.
The next day (29 April), Portugal’s Infrastructure Minister Pedro Nuno Santos said on 29 April that any injection of state funds in the Portuguese flag carrier TAP “will imply” the government will have more say in the company’s major decisions in the near future.
For now, while the state has 50% state control over the company’s shares, it does not have control over the company’s day-to-day management. Santos, however, had said that TAP was not being well managed before the airline took a financial hit because of COVID-19 and did not exclude nationalisation.
TAP is seeking state guarantees for two possible financing operations with Haitong and ICBC Spain, for a total of €350 million in loans.
When it comes to the country’s tourism sector, the Portuguese government estimated on 5 May that it would see a 50% drop in turnover this year compared to 2019 due to COVID-19, adding that Portuguese should enjoy holidays within the country.
On 27 May, TAP said that it would adjust the route recovery plan it had announced on 25 May, after the company was criticised by several national authorities, including the government.
The airline said it “is committed and will immediately collaborate with all economic agents, namely business associations and regional tourism entities.”
This announcement came after PM Costa said on 27 May that TAP’s executive board has a legal duty of “prudent management,” adding that their recently unveiled route plan to resume a significant portion of its regular flights from June “has no credibility” because the government hadn’t yet unveiled its strategy to reopen the country’s borders.
On 10 June, the Portuguese government’s decision to grant national airline TAP a €1.2 billion rescue loan was approved by the European Commission’s competition authorities, which cited the carrier’s crucial role in the country’s tourism sector.
If you are interested in the TAP bailout:
- Portuguese carrier TAP confirms request for state aid
- Portugal mulls nationalising its flag-carrier
- The Capitals Special Edition: Europe’s airlines try to ride out COVID-19 turbulence
A much-needed EU strategy
The Portuguese government and employers are in favour of a European strategy for reindustrialisation, the importance of which has been demonstrated by the coronavirus health crisis. Both the PM and the president of CIP, the Portuguese Business Confederation, agree that the crisis has demonstrated the need to implement a strategy for European reindustrialisation.
And, as the prime minister stated, the leader of the CIP argues that Portugal “has to place itself at the forefront of this strengthening of the industrial base”, in an effort that has to be “shared between public and private policies”.
On the topic of an EU recovery programme, the Portuguese government hopes for an EU fund to target the sectors most affected by the health crisis.
Portuguese Planning Minister Nelson de Souza called on 12 May for the adjustment of the EU recovery fund’s distribution criteria, which aims to finance the sectors most affected by the COVID-19 health crisis, stressing that some sectors – including the tourism, catering, aviation, export, footwear and textile industries – were being severely hit.
At the start of April, former ECB vice-president, Vítor Constâncio, said he believes that the EU’s most rapid and effective economic response to the crisis caused by the COVID-19 pandemic would be for the European Commission to put itself in debt – a proposal that’s in line with current EU budget rules, under the emergency clause of Article 122.2 of the EU Treaty.
According to the provision, if member states are in difficulties or seriously threatened with difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may, under certain conditions, grant financial aid from the Union to the member state concerned.
For more on Portugal’s stance on EU cooperation:
- European tourism urges measures to mitigate COVID-19 impact
- Portugal’s Costa criticises Netherlands over commitment to EU
- LISBON – At ‘forefront of re-industrialisation’ to weather coronavirus storm