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2019-2020: The virus that halted the economy
The outbreak of a pandemic led to most countries implementing health measures that abruptly affected many economic activities and social dynamics.
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2019-2020: The virus that halted the economy

This was an unparalleled crisis in several aspects. In the first place, the immediate trigger was not economic. From this unusual origin, the amplitude, length and some of the consequences of this recession were also different from historical patterns.


This crisis was not the result of imbalances or internal adjustments in the economy, but rather an external shock that affected the global economy: the outbreak of a pandemic, which led to most countries implementing health measures that directly or indirectly affected many economic activities and social dynamics.


On the last day of 2019, the World Health Organisation was notified of the existence of a “viral pneumonia” in Wuhan Province in the People's Republic of China. The virus, named “SARS-CoV-2”, is responsible for COVID-19 and quickly spread to many countries in several continents.

Global uncertainty set in, causing a slump in international trade in the first quarter of 2020. Activity began to slow down and the peak of the business cycle had already been left behind, marking the beginning of the recession.


The epidemic spread rapidly and the first case in Portugal was confirmed on 2 March. Two weeks later, the first State of Emergency was declared, with a set of restrictions to economic activities, social contacts and the movement of people and goods, aimed at trying to halt the increase in the number of people infected and the corresponding health consequences. The restrictions included limitations to movements on public roads, closing schools, closing public services, mandatory work from home and the reinstatement of land borders.

This first period of restrictions, which formally ended on 2 May, caused a significant fall in trade as well as in the consumption of goods and services, with the predictable consequence of a sharp fall in the GDP, which explains the highest fall in the real GDP per capita since records began and which made itself felt even more broadly in the second quarter of 2020.

A short and violent crisis

The decline in economic activity was concentrated in consumption and international trade, which saw its biggest fall since World War II. Tourism, which has an important weight in the Portuguese economy, was one of the activities most affected, with its effects extending beyond the restrictions, given the uncertainty that reigned. The Portuguese travel and tourism surplus fell 62.2% between 2019 and 2020, to EUR 4.958 billion.

The uncertainty also brought a 40% decline in the economic sentiment indicator between March and May 2020 and, along with the restrictions to trade, restaurants and hotels, this gave rise to a substantial increase in family savings, which went from 7.3% of available income in 2019 to 13.1% in 2020.

The lockdown measures had a positive impact on health and, after May 2020, with a fall in the number of new infections, the restrictions to economic activity gradually began to be lifted. This is why the beginning of the first half of 2020 saw the highest quarter-on-quarter growth in the real quarterly GDP since records began, around 15%, dictating the end of the recession caused by the Covid-19 pandemic.

The unprecedented slump in the economy was then followed by a robust recovery, marking the atypical nature of this crisis, which was short and severe.

Tourism was one of the sectors hardest hit by the pandemic

Balance of Payments surplus - Travel and Tourism


Recovery with setbacks

The recovery began but it was not without its setbacks, once again determined by the containment measures put in place as the pandemic spread.

The most severe measures came in late 2020 and early 2021 – as can be seen in the timeline above – when there was a significant increase in the number of cases, hospitalisations and deaths associated with Covid-19. This development, which was common to most countries in Europe, once again caused a slowdown in international trade and in consumption. However, real GDP per capita decreased a good deal less in the first quarter of 2021, despite a stronger rise in cases and similar response measures, recovering fully in the second quarter of 2021.

The private sector had adapted to learn how to function in spite of this shock. Therefore, despite its extent and the severe health impact, this new state of emergency did not cause a recession in the Portuguese economy. The fall in the GDP was less than that seen during the first state of emergency and its recovery was even faster.

The early measures were sudden and very restrictive

Stringency index

Index summarising degree of restrictiveness of COVID-19 containment measures in place.


The main indicators

GDP per capita

The fall in the economy, measured using the real GDP per capita, was 19.2% between the highest and lowest points in the business cycle. The peak for this business cycle was reached in the last quarter of 2019. There was a steep fall in the second quarter of 2020, which led to the trough.


Euros (€), chain-weighted, base year 2016


Economic Sentiment Indicator

Economic sentiment fell sharply throughout the entire first quarter of 2020, reflecting the high uncertainty of economic agents. For consumers, this uncertainty drove spending to fall.


Index, 9-month moving average, 100=October 2019


Imports and Exports

The contraction in international trade led to the steepest decline in trade in goods and services since World War II. The minimum value for this period was reached in the second quarter of 2020 but even after that, it continued below normal pre-pandemic levels.


Billion Euros (€), Imports + Exports

The unusual impact on the labour market

The consequences of this crisis were also atypical in some of the impacts they caused, particularly due to the public policy measures taken to mitigate its effects.


The changes in the labour market were the most obvious. The impact on unemployment was unusual because of the introduction of a simplified layoff system, which allowed many employees to keep their jobs although they weren't working because of the pandemic containment measures. The state paid part of these charges. This led to the highest ever number of companies using this labour system.


Only after the end of the first State of Emergency and the trough identified in this recession – the second quarter of 2020 – did the unemployment rate start reflecting the contraction in economic activity. The changes in hours worked was the indicator that most consistently went along with changes in GDP.

Likewise, the introduction of several exceptional credit moratorium schemes cushioned the impact of this crisis on the credit obligations of companies and families.

Also contrary to the norm in recessions, the building industry saw virtually no contraction.


It was an abrupt recession, but it was also very fast.
Professor at Nova School of Business and Economics
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The 2019-2020 Recession by José Tavares, Professor at Nova School of Business and Economics
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