Portugal – Is the top European destination ready for a renewed crisis?
21 January 2021 /
Over ten years ago, the Lehman Brothers crashed into bankruptcy, leading to the greatest economic disaster since the Great Depression. This economic crisis agitated economies all over the world. From the United States to London, Paris, and Brussels. Every country – in a way, or another – was caught up in the bubble of an erupting financial system. Portugal was hit hard by the economic crisis, but somehow it managed to recover. Facing both a pandemic and a (new) economic crisis, will the strategy of the socialist government win over the memories of the past?
One of those in the « Lazy South »
The 2008 economic crisis was very harsh on the Portuguese people. Millions faced strong austerity measures, some lost their jobs, some emigrated and others gave up to poverty. This, added to the laid-back and warm Portuguese mentality, contributed to the pejorative conception that Portugal «is one of those countries in the lazy south». The Portuguese government has been keen on proving the northern countries wrong.
Years have passed and until March 2020, Portugal was having an outstanding economic performance – given that it had just recovered from the previous crisis. In accordance with the OECD Economic Survey for Portugal, in February 2019, the country had already returned to the pre-crisis levels of unemployment of 7%. Simultaneously, the public debt was falling – even though it remained one of the highest in OECD countries – and according to PORDATA it ac- counted for 117.2% of the GDP. To modernize the country, Portugal conducted reforms such as Simplex and Simplex+ programs, designed to cut unnecessary red tape for businesses; Capitalizar, designed to facilitate innovation collaborations and Partnership Digital Skills+, whose aim, among others, is to promote greater use of digital services within the population.
The impressive economic recovery was, however, sustained mostly by the rapid growth of the tourism sector, which would prove to be Portugal’s Achilles heel during the outbreak of the pandemic.
Tourism: The Achilles heel of the Portuguese Economy
For many in Europe – and in the rest of the world – Portugal is also portrayed as a country of beaches, nice weather and warm people. It. has been one of the most famous destinations for tourists in central and northern European countries and a recurrent award winner for tourism and hospitality management. In fact, as of November 2020, Portugal won, for the fourth year in a row, Best European Destination, as well as other twenty awards given by World Travel Awards.
The outbreak of the Covid-19 pandemic proved to be brutal for the Portuguese economic strategy. According to a study by EY Consulting, the Portuguese tourism industry is amongst the most penalized countries – with an estimated loss of 11 billion euros of the GDP. However, Portugal is considered by EY Consulting as a strong Foreign Direct Investment, namely because it has a business-friendly environment, highly skilled professionals, and a rapidly growing technological system. According to Miguel Farinha, the stability (political and social) of the country is also a positive factor for the country’s recovery. At the same time, Moody’s Consulting considers that the Portuguese economy can absorb this economic shock. One way or the other, the handful of tourists who came to Portugal this summer, when borders opened, contributed to the aggravation of the pandemic. This seems to be a vicious circle.
A Strategy for Economic Recovery
During an interview with the Prime-Minister António Costa, he said: “What happened in Portugal shows that too much austerity deepens the recession and creates a vicious circle.” So, what should we expect for the (renewed) recovery of the country?
With first COVID-19 cases, on March 2nd, the Portuguese government quickly took measures to control the situation. On March 18th, the country entered a two-month strict lockdown. Quite quickly, the socialist government took measures to support jobs and companies, by namely funding the simple layoff of the companies’ workers. Despite these efforts, Portuguese companies ended up having an income loss of around 40%. The Crisis was installed.
Following the easing up of the lockdown measures, the government proposed a document guidelining the future recovery plan – “Visão Es- tratégica para o Plano de Recuperação Económica de Portugal 2020-2030”. The document, elaborated by Professor António Costa Silva, sets out ten strategic fields of action for economic recovery, such as infrastructures, the Welfare State and digital transition. The recovery plan – “Plano de Recuperação e Resiliência” – was thus presented in late September to Ursula von der Leyen, the President of the European Commission. In an interview, von der Leyen admitted that Portugal “can be an example for other EU countries”. To take into action this plan, Portugal is expected to receive, during the next ten years, 45 billion euros from the European Union. This will be an incredible opportunity for Portugal to revitalize its economy.
Although the present is still difficult for Portugal, the previsions for 2021 are somehow bittersweet. The fall of the GDP in 2020 can get to 12% and investment is expected to fall by 26% until the end of the year. It is predicted that the economy will contract 6.8% and recover by 5.8% in 2021. Unemployment is predicted to rise to 9.7% and recover to 7.4% in 2021.
While Portugal took advantage of its touristic potential to face the last economic crisis, it has also proven to be Portugal’s Achilles heel in 2020. However, according to Luís Araújo – the President of Turismo of Portugal – “Portugal is still the world’s best destination”, being also the first country in Europe to be declared “TravelSafe”.
All in all, even though the Portuguese people will face a renewed crisis, this moment presents itself as a double-sided opportunity: on the one hand, for the Socialist Party to prove once again its crisis management capacity, and therefore to guarantee another mandate; and, on the other hand, for Portugal to take advantage of the out-standing EU funds coming their way, and finally diversify its economy enough to not depend solely on tourism. It’s time for Portugal to embrace its potential: become more than a tourism destination and not just one of those «Lazy in the South».
This article was first published in the 33rd issue of the magazine. Read the entire issue here.