Economy with 10-year shock will only ‘cure’ the pandemic in 2030

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The Government estimates that the Portuguese economy will only recover from the “shock” of the covid-19 pandemic in 2030, according to the outline of the Recovery and Resilience Plan (PRR) delivered today in Brussels.

According to the first draft of the document delivered today to the European Commission by the Government, to which Lusa had access, the PRR will allow “that in 2030 the Portuguese economy has fully recovered from the shock caused by the pandemic, reaching a GDP [Produto Interno Bruto] identical to what you would achieve in a scenario of no such shock “.

Moreover, the Portuguese executive estimates that the annual impact of PRR on GDP will be, on average, 0.5 percentage points (pp), that is, without a recovery plan, the national economy would grow 0.5 pp less annually by 2026.

In the preliminary version of the Portuguese Recovery and Resilience Plan, two macroeconomic scenarios are presented, with and without the European fund.

Without the fund, Portuguese GDP would have grown 5% in 2021, 3.4% in 2022, 2.5% in 2023, 2.3% in 2024, 2.2% in 2025 and 2% in 2026.

Taking into account the funds of the Recovery Fund, the economy is expected to advance 5.4% in 2021, 3.6% in 2022, 3.3% in 2023, 3.2% in 2024, 2.6% in 2025 and 2.4% in 2026.

This difference is also felt in the deficit, since with the implementation of the European plan the Government forecasts a deficit of 4.3% in 2021, of 2.7% in 2022 (already below the limit of the European Commission’s Stability Pact, 3%), 2.2% in 2023, 1.4% in 2024, and 0.7% in 2025.

In contrast, in a scenario designed without the existence of a recovery plan, the Government predicted a 1.2% deficit in 2026.

Thus, without the plan, after the surplus of 0.1% of GDP last year, the executive would still expect a deficit of 7.3% in 2020 and 4.3% in 2021, but as of 2022 the figures for the the negative balance of public accounts would increase to 2.8% in 2022, 2.4% in 2023, 2.0% in 2024, 1.6% in 2025 and 1.2% in 2026.

In addition, the Government already allows recourse to loans under the European Recovery and Resilience Mechanism, worth 4.3 billion euros, for accessible public housing, support for companies and railway rolling stock.

“The Portuguese Government took the decision to maximize the use of European funds as a subsidy and to minimize the use of loans that may give rise to an increase in public debt”, the document reads, but, even so, the executive lists three investments that deserve a careful assessment of their eligibility, and under what conditions, for the loan component of the European Recovery and Resilience Mechanism ”.

Of these investments, there is a stake of 2.7 billion euros for the “public housing stock accessible”, as well as close to 1.3 billion euros for “business capitalization and financial resilience” within the scope of Banco de Fomento , respectively in the housing and employment promotion modules.

With regard to sustainable mobility, the use of Community loans is considered for an investment of 300 million euros in railway rolling stock, namely for regional trains.

At the end of September, the Prime Minister had stressed that Portugal would not use the Recovery Fund’s share of loans, making full use of the grants.

“Portugal has a very high public debt and assumes to come out of this crisis stronger from a social point of view, but also more solid from a financial point of view. Therefore, the option we have is to make full use of grants and we will not use the part related to loans until the country’s financial situation allows it ”, stressed António Costa at the time, speaking at the Champalimaud Foundation in Lisbon, after an intervention by the president from the European Commission, Ursula von der Leyen, who traveled to the country.

Last July, the European Council approved a Multiannual Financial Framework for 2021-2027 of 1.074 billion euros and a Recovery Fund of 750 billion to deal with the crisis generated by covid-19, between grants and loans.

Between the two European packages, Portugal is expected to raise around 45 billion euros in non-repayable grants in the period from 2021 to 2029.



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