IBERSOL | Annual Report 2020

Economic framework Situation in Portugal Recent data from Banco de Portugal indicate a contraction of 8.1% of the Portuguese economy in 2020, a year heavily affected by the Covid-19 pandemic. Economic activity dropped by a total of 17.3% in the first semester, compared to the end of 2019. In the third quarter, following a gradual lifting of lockdown measures, activity recovered quickly, with a GDP growth of 13.3% compared to the previous quarter, benefiting from delayed spending during the lockdown period. The recovery trajectory was reversed in the fourth quarter (-1.8% com- pared to the previous quarter) with the implementation of new lock- down measures in Portugal and in the main trade partners, leading to a second full lockdown in mid-January 2021. The drop in activity in 2020 reflects a decrease in domestic demand (-6.8% in private consumption) and exports, including the very nega- tive contribution of exports and services, particularly in tourism re- lated services. Employment dropped by 2.3%, which was lower than expected, largely due to business support policies, namely the simpli- fied lay-off regime. During the first semester of 2020, families significantly reduced their consumption expenses (a -15.4% total variation, compared to the end of 2019). The impact on family revenue was softened by government measures, including moratoriums on loans. The savings rate for the first semester stood at 14.3% of available income, a 6.9 percentage point increase compared to the end of 2019, with a partial reversal in the second half of the year. Considering a framework of gradual softening of restrictions after the first quarter of 2021, and the progressive normalisation of the activity of most economic agents (the key factor being the speedy vaccina- tion process of the whole population) a 3.9% GDP growth is forecast for 2021, with private consumption expected to return to an upward trajectory. 10