Immediate impact: January - July 2020

Portugal declared a state of emergency that lasted from 18 March to 3 May 2020. Measures taken prevented the movement of people, promoted remote working, and allowed only essential services (bakeries, grocery stores, supermarkets, gas stations, pharmacies and newsstands) to remain open. As a result, many entrepreneurs faced a significant decrease in revenue.

Restrictions on circulation significantly impacted entrepreneurship ecosystems. Initially, entrepreneurs reported difficulties in managing teams from a distance. They struggled to keep employees engaged and motivated through a time of high uncertainty. As the months passed, both entrepreneurs and employees have found ways to work efficiently from home (with the help of online platforms). A large percentage of companies have subsequently reported an increase in productivity.

One of the most obvious changes has been the huge growth in the digitalization of both public and private sectors. Schools and universities, gymnasiums, music studios and various companies related to training have moved fully online. Although this move may be temporary, it is expected that this will force a shift to more online business models.

Many companies have also shifted their business model towards making products that are in high demand because of the pandemic. Alcoholic beverage companies have begun to produce hand sanitizers while companies in the textile sector have switched some of their production capability to producing masks and protective clothing, with others producing protective visors.

Immediate policy interventions: January - July 2020

As a point of comparison, the main government response to the Global Financial Crisis of 2008–2009 focused on preventing total collapse of the financial system. After 2008, the Portuguese government provided financial support to local banks, thereby preventing some of them from going bankrupt and allowing them to continue supporting national companies with loans. The government also increased public investment and put money into public construction to support companies working directly or indirectly in that sector.

Measures taken to tackle the COVID-19 crisis have been very different from past interventions. Since the COVID-19 pandemic has led to a massive cut in global demand for products and services, the main focus has been on keeping companies operating (even partially). This has been accomplished by the introduction of a system intended to keep people employed even during months when companies have very low or no sales. Employees have been able to receive two-thirds of their normal salary: the government pays 50% of this with the company paying the balance. Also, banks have allowed deferments of loans for those experiencing salary cuts. Furthermore, companies have been allowed to delay payment of their tax/fiscal obligations.

Future economic / policy outlook

Up to mid-2020, the measures taken focused more on keeping existing companies running and less on stimulating entrepreneurship. However, as the economic crisis intensifiies, it is expected that new measures will be implemented to serve this latter purpose.

The COVID-19 crisis will have a large negative impact on the Portuguese economy in 2020, reflected in a GDP reduction of 6.9%, according to the government. In 2021, it is expected that GDP will grow 4.3%. Exports will fall by around 15.4% in 2020. Unemployment will reach 9.6% in 2020 and 8.7% in 2021 (in 2019, it was at 6.5%). In 2020, prices are expected to decrease by 0.2%, and the national budget deficit will be at –6.3%. The national debt will reach €134.4 billion in 2020.

The government’s next steps will likely maintain its focus on keeping companies running and supporting jobs by continuing to directly pay a portion of salaries to keep unemployment numbers as low as possible.

The severe fall in demand for products and services in March and April 2020 resulted in a drastic reduction in sales for a large number of companies. Measures taken by the government to support these businesses have prevented them from going bankrupt. However, despite this assistance and the reopening of the economy, businesses are still facing a major economic crisis unparalleled in recent history. Therefore, as companies evolve and adapt to a new reality, the government will continue to play a crucial role in supporting companies and the economy overall until at least the end of 2020.