The effects of the pandemic remain visible. The number of unemployed soared in May and the deficit exceeded 1% in the first three months of the year. Budgetary execution in public accounts of Public Administrations registered a deficit of 3,203 million euros until May, representing an increase of 2,550 million compared to the same period last year. And the prospects are not encouraging, according to analysts contacted by SOL.
The numbers speak for themselves. The deficit worsened until May at 2.550 million compared to the same period last year. The ‘fault’ is the contraction of revenue (-0.4%) and the growth of expenditure (7.4%). According to the Ministry of Finance, “the execution already highlights the effects of the Covid-19 pandemic on the economy and public services following the mitigation policy measures”.
The drop in revenue by less 869 million euros is, according to the Ministry led by João Leão, associated with the extension of tax payments (VAT, IRS and IRC) and the suspension of tax revenue foreclosures (not yet quantified for Social Security extension of contributions and suspension of tax foreclosures). And also due to the growth in expenditure (951 million euros) mainly associated with layoff measures (453 million euros), acquisition of health equipment (169 million euros) and other support supported by Social Security (144 million euros) ).
“In addition to these direct effects, there are additional effects associated with the slowdown in the economy, which also has an impact on tax and contributory revenue and the increase in expenditure on automatic stabilizers,” says the Ministry of Finance office.
Tax revenue, on the other hand, stabilized with an increase of 0.4%, with emphasis on the reduction of the IRC and of the generality of indirect taxes «which largely reflects the economic slowdown», while social security contributions showed a marginal increase. 0.1%, «intensifying the trend of deceleration compared to the pre-covid-19 months (until February, the contribution revenue grew 7.4%)».
In turn, expenditure grew 7.4%, influenced by the significant evolution of Social Security expenditure (+ 12.4%), of which around 597 million associated with covid-19, as well as pension expenditure (4.2 %) and other social benefits (10.7%), such as unemployment benefits (13.2%), social action (8.2%), social benefit for inclusion (29.3%) directed at people with disability and family allowance (14.7%).
At the same time, «there was a significant increase in SNS expenditure by 9.2%, namely in personnel expenses (+ 6.8%). It is worth mentioning the reinforcement of more than 5,600 professionals assigned to the NHS in year-on-year terms », adding that the expenditure on salaries of civil servants grew by 4%, corrected for occasional effects. “The increase in personnel expenses is also the result of the completion of the thawing of careers, highlighting the 4.7% increase in expenditure on teachers’ salaries”, he says.
Public investment also increased by 64.4% in Central Administration and Social Security, excluding PPPs, «reflecting the strong growth dynamics within the scope of the Ferrovia 2020 investment plan and other structural investments and the acquisition of medical supplies to combat covid-19 for hospitals ».
The National Statistics Institute had already announced, this week, that the deficit of public administrations in the first three of the year had been 1.1%. At that time, the Ministry of Finance had already ensured that the values «also reflect Portugal’s solid economic and budgetary conditions in 2019, which allow the Portuguese today to have confidence in responding to the challenges that arose in the first quarter of the year» . But João Leão’s office left a message: “The Government remains committed to the rigor and discipline of public accounts, which ensure the best financial and budgetary management for the country.”
Still, David Silva admitted that the figures are not as negative as expected. “A deficit of 2.1% was already pointed out by the Technical Budget Support Unit, that is, a negative impact on national accounts was already expected for the first quarter, which, even so, was not as negative as expected,” he told the SUN.
André Pires, an XTB analyst, argues that, “in general, the data for the first quarter are beginning to reveal the impact of pandemic restrictions on the country’s economy and finances. The increase in family savings also reveals a conservative consumption of the population, which can be an indicator of a drop in commercial activity ».
David Silva recalls that the Government predicts a deficit of 6.3% for this year and, «certainly, the next quarter will show a worsening of Portuguese accounts, since it was the quarter (to date) most affected by the covid pandemic. -19, with the country remaining in confinement and a state of emergency for almost two months, thus leading to an increase in state expenditure and a slowdown in revenues, mainly tax revenues related to trade ». Faced with this scenario, the XTB analyst predicts that the second semester will be more revealing. “Although it is already experiencing a less critical phase of the crisis, the effects of restrictive measures and economic incentives may not be immediately expressed, and we can better assess this impact at the end of this quarter,” says André Pires.
Unemployment rises
The effects of the pandemic are also reflected in the number of unemployed people around 409 thousand. This is an increase of 103,763 compared to the same period last year, according to the latest data from the Institute of Employment and Professional Training (IEFP). This figure represents an increase of 34% in relation to May 2019 and of 4.2% compared to April – figures that do not surprise analysts contacted by SOL.
For André Pires, “the scale of the restrictions will certainly leave scars that are difficult to cure, especially in SMEs, which make up a large part of the Portuguese business fabric”, says the XTB analyst. Pedro Amorim also argues that a considerable increase in unemployment was already expected. But even so, he admits that his forecast is above what was announced, and this is due, according to the official, to the fact that many unemployed people have not yet registered with the IEFP.
The outlook for the future is also not encouraging. The Infinox analyst recalls that “many companies already have some collective redundancy programs” and argues that the weak turnover of some economic sectors will lead to widespread redundancies.
The opinion is shared by André Pires in defending that the increase in unemployment levels may not stop here. «If unemployment has not yet increased much in our country, this is due to the state of layoff of many companies», adding that «some companies, seeing no economic viability to continue their activity with the number of current employees nor having the resources for compensation for termination of contracts, they may be constrained to go bankrupt, which will lead to an increase in the level of unemployment prolonged over time ».
And the alerts don’t stop there. The XTB analyst also said that, thanks to state support, they have not yet laid off staff, but continue to accumulate losses due to fixed costs over the period of confinement and low demand, “they may go into insolvency”.
Pedro Amorim also believes that the lifeline for employment will not be answered in the Supplementary Budget. “The Government’s responses have no capacity. We are at risk of bankruptcy in the national economy and we are still waiting for European aid ». And he adds: “The threat of a second wave is a considerable risk that should not be ruled out. If that happens, we can see the situation deteriorating and not even European aid will be enough. My criticism of the supplementary measures is the lack of prevention and short-term thinking ».
It is recalled that the IEFP says that the increase of more than 100 thousand unemployed compared to May last year was caused by more unemployed in all the groups considered, with special emphasis on women, adults aged 25 years or over, those enrolled for less than a year, those looking for a new job and those with secondary education.
But it was in the Algarve that the biggest deterioration was registered, with this region having a 202% increase in unemployed at the end of May compared to the same period last year. The explanation is simple: the tourism sector was one of the hardest hit by the pandemic. Conversely, in the Alentejo (-1.4%) and the Azores (-2.4%) there were even declines in the number of unemployed.
IMF more pessimistic
What is certain is that the pandemic is affecting all countries, in which Portugal is not unaware. According to the International Monetary Fund (IMF), the eurozone’s gross domestic product (GDP) may contract 10.2% already this year, a value 2.7 percentage points above the forecast of April – which was 7 , 5%. However, it improves expectations regarding the recovery next year, pointing to 6%, that is, 1.3 percentage points higher than the estimated value in April. For Portugal, the IMF has not updated its forecasts compared to April.
However, the international entity leaves some messages for economies that are already opening up little by little. The IMF argues that the exit from social support and employment mechanisms “should occur gradually to avoid precipitating sudden declines in income and bankruptcies precisely when the economy is recovering”. And he says that, “if the budgetary space allows it, as specific budget support is withdrawn, it can be replaced by public investment to accelerate the recovery and the social safety net can be expanded to protect the most vulnerable”.
The institution also says that subsidies for hiring and spending on training workers will have to increase, to facilitate relocation to sectors with greater demand and distance from sectors that will become smaller after the pandemic.
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