Portugal's government cuts 2021 growth outlook to 4% due to lockdown

The new estimates were laid out in the so-called Stability Programme, assessing the impact of pandemic-induced restrictions on growth, which must be presented to the European Commission as part of EU members' economic plans. "The effect of the third wave of the pandemic forced a lockdown and closed many activities, but our forecast is that there will be a strong recovery in the second half of the year," Leao said.

Portugal's government has cut its 2021 economic growth forecast to 4% from 5.4%, the finance minister said on Thursday, after a severe worsening of the coronavirus pandemic at the start of this year forced a nationwide lockdown lasting over two months. Joao Leao also told a news conference the budget deficit should reach 4.5% of gross domestic product this year, up from the previously forecast 4.3%.

The Bank of Portugal estimated in March that growth would reach 3.9% this year. The new estimates were laid out in the so-called Stability Programme, assessing the impact of pandemic-induced restrictions on growth, which must be presented to the European Commission as part of EU members' economic plans.

"The effect of the third wave of the pandemic forced a lockdown and closed many activities, but our forecast is that there will be a strong recovery in the second half of the year," Leao said. Higher exports and increased investment thanks to the European recovery programme should boost GDP growth to 4.9% next year, allowing the economy to reach its pre-pandemic activity level, he said.

Portugal's tourism-dependent economy contracted 7.6% in 2020, its steepest economic recession since 1936. The deficit rocketed to 5.7% of GDP, a blow just after the country achieved its first surplus in at least four decades in 2019, of 0.1%. The nation of 10 million people was particularly hard hit by the third wave of the pandemic, experiencing what was then the world's worst coronavirus surge, and is now gradually easing strict lockdown measures imposed in mid-January.

Leao said Portugal would maintain a "responsible" economic policy, aiming to lower the deficit to 3.2% of GDP in 2022 and 3% in 2021, while gradually cutting the debt ratio to below 120% of gross domestic product in 2024 from a record 133.7% in 2020. He said the government would maintain incentives to retain and create jobs and to support investment.

"The recovery will be made without recourse to austerity as in the previous crisis, and with tax stability", Leao said.