11 Maio, 2020 | Advisory

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Economic recession. What to expect?

11/05/2020 | Historical Recession of the World Economy and of course the Portuguese Economy. What to expect?

After the IMF, the European Commission presented last week the economic forecasts for the European Union and the Eurozone. The scale of the recession in Europe in 2020 will be historic. It will definitely break a negative record of over a hundred years.

According to these forecasts, Portugal's GDP in 2020 will fall by 6,8% (IMF forecast of 8%), while unemployment will reach an average of 9,7% for the European Union and for the IMF of 14,6 .16,7% (remember that at the peak of the last financial bailout, unemployment reached 6,5%), the impact on the state accounts will also be very strong, the deficit will reach 131% and the public debt will reach a record value which will be above 1975% of GDP. We recall that the 5,1 crisis resulted in a 2012% drop in GDP and that of 4,1 reached XNUMX%.

Given this scenario of economic and financial calamity, we can even see that Portugal has less bad indicators when compared to the European average, the drop in GDP will even be below the forecasts for the European Union average and that in the whole of 2020 and 2021 the performance The Portuguese economy will be less negative than the average for the countries of the Eurozone and the European Union.

But the best of these forecasts is that the government hopes that in two years, it will be possible to return to the economic situation of 2019, before the recession generated by the Covid-19 pandemic, noting that this depends on the dimension of the health crisis, which is still uncertain.

So, faced with so much uncertainty, we wouldn't be surprised that in a month or two, these predictions will be very different for the worse.

Whatever the context, what will happen in Tourism, Commerce, Industry and Agriculture will depend not only on the measures that the government adopts, but also on the initiative and creativity of companies and entrepreneurs to counteract the crisis. All this will also depend on the approval by the European Union of the Recovery Fund, scheduled for the end of May.

Let's wait for how this funding to Member States will be done, hopefully it will be largely through grants, complemented with some loans as long as they mature long enough to dilute what the costs are.

For now, the only certainty is the uncertainty regarding the outcome of the health crisis. In this context, the temptation is to do nothing and this is the worst that can happen, both for companies and employees. It is time to think and rethink, we have already realized which sectors were most affected, which sectors are in prosperity and it will not be difficult to see which sectors to invest in. Thus, it will be necessary for entrepreneurs and managers to find new paths for their companies, with the consequent changes in the demand for products and services by consumers, in the differentiating processes both externally and internally, in the development of human resources, that allow the achievement of a sustainability that is currently being questioned.

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Follow the recommendation of health professionals keeping your safety and that of yours.

Count on DFK

Victor Santos

Partner