Portugal Sees Economy Shrinking 6.9% This Year Due to Outbreak

(Bloomberg) -- Portuguese Prime Minister Antonio Costa forecast his country's economy will shrink 6.9% this year after the coronavirus outbreak forced authorities to impose confinement measures and shut some businesses.

The government plans to help companies recover with more financing and incentives, Costa said at a press conference in Lisbon on Thursday. It will also increase some benefit payments, with unemployment expected to rise to 9.6% by the end of the year. The European Commission forecasts the country's economy will shrink 6.8% this year.

The Portuguese economy's contraction in 2020 will follow six years of growth that helped the country's minority Socialist government to cut the jobless rate and narrow the budget deficit. Portugal, which has the third-highest debt ratio in the euro area behind Greece and Italy, in May started easing some lockdown measures that it implemented in March to help contain the pandemic.

Costa said the government has set up a plan worth 523 million euros ($593 million) to carry out various small construction projects in the next six months. Other measures presented by Costa for the rest of this year include:

An increase in the credit line guarantees provided by the government to a total of 13 billion euros, the maximum allowed by the European Commission.
A moratorium on house loans will be extended until the end of March.
The “simplified layoff” regime, through which the government helps pay part of the compensation of workers that are temporarily suspended, will be extended until the end of July. Other incentives will be put in place after that as businesses gradually resume operations. The total cost of the layoff measure through July and the other incentives until the end of the year will be 2.5 billion euros, Costa said.
The government will invest on improving the remote learning provided to school students.
The national health service will hire 2,700 workers.

The prime minister also said that confinement measures that remain in place in the Lisbon region may be lifted on June 15. The government last week delayed the planned reopening of malls in greater Lisbon after recording new clusters of the virus outbreak near the city.