June 4, 2020 / 7:16 PM / a month ago

Portugal economy to contract 6.9% this year, prime minister says

FILE PHOTO: Portugal's Prime Minister Antonio Costa addresses reporters before a meeting with German Chancellor Angela Merkel (out of picture) in Berlin, Germany March 11, 2020. REUTERS/Michele Tantussi/File Photo

LISBON (Reuters) - Portugal’s economy will contract 6.9% this year and unemployment is likely to soar to 9.6% due to the impact of the coronavirus pandemic, Prime Minister Antonio Costa said on Thursday.

The country had seen some of its strongest growth streaks in the past few years after leaving behind the 2010-13 economic and debt crisis, and the recession predicted by the government is still slightly less steep than the 7.7% decline for all of the euro zone forecasted by the European Commission last month.

Last year, Portugal’s gross domestic product grew 2.2% while unemployment was 6.5%, near record lows. The economy is heavily dependent on tourism, which accounts for up to 15% of GDP and has suffered from the coronavirus lockdowns in Portugal and abroad.

Costa said that in the three months since the start of the epidemic and subsequent restrictions, about 100,000 Portuguese lost their jobs and 800,000 were furloughed.

“The only way to recover from this crisis is by resuming economic activity,” Costa told a news briefing after a cabinet meeting that approved, among other measures, a six-month extension of a moratorium on banking loan repayments until March 2021, and more state-guaranteed loans for companies.

The suspension, in place since March, can be applied on bank loans to companies and individuals, including on household mortgages and is designed to avoid jeopardising the banking system with a jump in bad loans.

The government will also double state-guaranteed credit lines for companies to 13 billion euros ($14.73 billion).

Reporting by Sergio Goncalves and Andrei Khalip; Editing by Leslie Adler

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