portugal - igcp, e.p.e. - igcp

February 2021

PORTUGALResilience in the face of adversity

Improved fundamentals provide protection against economic downturns and market volatility

The Portuguese economy was experiencing a virtuous circle when the COVID-19 pandemic emerged

• Portugal completed the transition to balanced growth. The 2000s weremarked by accumulating macroeconomic imbalances, which led to a requestfor financial assistance in 2011. The EU-IMF Economic Adjustment Programkick-started an encompassing reform agenda.

• Growth foundations have strengthened significantly since 2014, creating avirtuous circle in the economy:

- The economy rebounded and started converging with the euro area. GDPgrew steadily for 25 consecutive quarters (2013Q4-2019Q4), supported byimproving labor market dynamics and robust private consumption.

- Current account flows remain broadly balanced, in contrast with double-digitdeficits in the 2000s. Increased FDI confirms positive structural changes in theeconomy.

- The private sector is more resilient. Banks rebuilt capital and liquidity, whilehouseholds and corporates started belated deleveraging efforts.

- The sustainability and affordability of public debt are enhanced, due toresponsible fiscal policy (sustained primary surpluses and lower interest costs)and active debt management (smoother redemption profile, longer averagematurity, broader investor base, prudent cash management).

• The impact of COVID-19, though severe, is expected to be temporary:improved fundamentals and concerted efforts from national and Europeanauthorities should support a solid recovery.

2

The Portuguese economy is better prepared to face an unprecedented global shock

Source(s): European Commission and IGCP calculations (implicit interest rate as the ratio between total interest and average debt stock).

Executive Summary

[Values in %, EC forecasts for 2020-2022]

Shock andRecovery

StagnationCrisis andResponse

BalancedGrowth

0

1

2

3

4

5

6

7

-25

-20

-15

-10

-5

0

5

10

Series4 Primary Balance GDP Implicit interest rate (rhs)

External accounts underwent a paradigm shift

[Current Account Balance, %GDP and contributions to CA balance (pp)][Real GDP growth, % and contributions to growth (pp)]

Structural reforms and economic revitalization kick-started a sustained recovery

3


Source(s): Statistics Portugal (LHS); Banco de Portugal (RHS).

Executive Summary

2.2

-8

-6

-4

-2

0

2

4

6

Final consumption expenditure Gross capital formation

External balance GDP at market prices

-0.1

-20

-15

-10

-5

0

5

10

15

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Services Primary Income Secondary Income

Goods Current Account - Balance

100.2

114.4

129.0131.4

132.9131.2 131.5

126.1

121.5

117.2

-10

-5

0

5

10

15

90

100

110

120

130

140

2010 2011 2012 2013 2014 2015 2016 2017 2018Po 2019Pe

General government consolidated gross debt Primary Balance (rhs)

10y PGB yields (rhs)

Fiscal discipline became the norm in policy-making

[General Government Debt and Primary Balance (%GDP) vs. 10y PGB yields (%)][Non-financial private sector debt, % GDP]

Financial stability benefits from continued deleveraging in the private sector

4


Source(s): Banco de Portugal (LHS); Statistics Portugal and Bloomberg (RHS).

Executive Summary

Public debt decreased by 15,7 pp

0

20

40

60

80

100

120

140

160

180

0

50

100

150

200

250

300

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

Mar

-17

Sep

-17

Mar

-18

Sep

-18

Mar

-19

Sep

-19

Mar

-20

Sep

-20

Private corporations Private individuals Loan-to-deposit ratio (RHS)

Economic growthpost-COVID

Financing the recoveryLatest developments

PORTUGAL: Resilience in the face of adversity

5

• When the first cases of COVID-19 werereported in March 2020, the Governmentlaunched a comprehensive policy package tocontain the outbreak and support economicactivity and social welfare, which isfrequently adjusted to the current needs.

• The economy reopened in the summer, withencouraging results in activity, but a newsurge in cases led to additional containmentmeasures. The situation deteriorated inJanuary 2021 and a new lockdown period wasdeemed necessary.

• The authorities continue to address anevolving health crisis while providingcontinued support to economic activity andthe population at large. Structural prioritiesremain present in policy decisions (strongerpotential growth, sound public finances,financial stability).

The first wave was successfully overcome and the economy reopened through the summer. In spite of new mobility restrictions in the fall, the health situation deteriorated through January, leading national authorities to reinstate containment measures.

Increased COVID-19 cases called for additional containment measures

6

Latest developments | Health situation and policy response

Mar-Apr 2020Country-wide lockdown from 22 March

(15-day periods, renewed twice)

May 2020Gradual

reopeningof the economy

Jun-Sep 2020Improved economic dynamics

Oct 2020Restrictions on

mobility and gatherings

Nov-Dec 2020Measures for high-risk

regions (curfew, remote working, health control)

Jan 2021Country-wide

lockdown (non-essential activity

suspended)

Source(s): Our World in Data.

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Mar-20 Apr-20 May-20 Jul-20 Aug-20 Oct-20 Nov-20 Jan-21

New cases (daily) New cases (7-day moving average)

Policy measures are anchored in 3 priorities – contain the outbreak, support employment and economic activity, enhance social welfare –but the calibration evolves with the health situation

The Government’s policy response is comprehensive and dynamic

7Source(s): Portuguese Government (measures); European Commission Opinion on 2021 Draft Budgetary Plan (fiscal impact).

Latest developments | Health situation and policy response

Deal with the emergency

Contain the outbreak (duty of self-isolation; temporary reinstatement of border controls; closure of selected activities)

Support the economy to secure jobs (short-term employment protection scheme; deferral of tax/social security payments; State-guaranteed credit lines; moratoria on bank credits)

Ensure adequate welfare provision(moratoria on households’ bank loans; enhanced social benefits)

Increase the response capacity of the National Health Service

Stabilize economic and social conditions

Boost employment (extension of short-term employment protection scheme; incentives to the gradual increase in working hours and labor income; launch of small public works)

Increase firms’ capital and liquidity (extension of moratoria on bank credits; maximum amount of State-guaranteed credit lines increased to 6,6% GDP; added flexibility in compliance with tax obligations; fully-fledged national promotional bank; incentives to SME consolidation and improved access to capital markets)

Enhance social welfare (wider range of social benefits; enhancement of the National Health Service; digital transition in public schools; improved access to affordable housing)

Improve the institutional set-up (streamlined public administration procedures; added support/flexibility for local and regional administrations; focus in the judicial system)

Bolster up policy support

Strengthen the response capacity of the National Health Service

Provide additional liquidity support to the most affected firms (e.g. entertainment, restaurants, exporting firms)

Adjust the short-term employment protection scheme (accumulation with other measures allowed)

Improve predictability on 2021 support measures

2020 budgetary cost: 2,8% GDP(2,2% expenditure and 0,6% revenue)

Pandemic-related publicly guaranteed credit lines: 3,3% GDP

2021 budgetary cost: 0,9% GDP(2,0% expenditure offset by 1,1% revenue)

Refocus on public health

Contain the surge in COVID-19 cases and hospital admissions (closure of non-essential activities; closure of schools/ universities from 22-Jan; duty of self-isolation; country-wide mobility restrictions; tighter control; heavier fines)

Strengthen policy action (extension/recalibration of employment support schemes; enhanced support to the cultural sector, the third sector and businesses impacted by the new lockdown; renewed benefits for the educational community amidst the new lockdown, including parental leave and support to vulnerable students)

Mar-Apr 2020Country-wide lockdown from 22 March

(15-day periods, renewed twice)

May 2020Gradual

reopeningof the economy

Jun-Sep 2020Improved economic dynamics

Oct 2020Restrictions on

mobility and gatherings

Nov-Dec 2020Measures for high-risk

regions (curfew, remote working, health control)

Jan 2021Country-wide

lockdown (non-essential activity

suspended)

8

Stronger growth fundamentals and policy support act as a powerful shield

Source(s): Statistics Portugal.

Latest developments | Economic activity

The economy fell sharply in Q2 and recovered in Q3, providing a cushion against a riskier Q4

[Real GDP, YoY growth (%) and contributions (pp)]

Private consumption was growing steadily before the outbreak and the ensuing containment measures

[Private Consumption, YoY growth (%) and contributions (pp)]

-4.3

-20

-10

0

10

2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2018Q3 2019Q3 2020Q3

Food and beverage products Durable goods

Non-durable goods and services Total private consumption

-5.7

-50

-40

-30

-20

-10

0

10

20

2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2018Q3 2019Q3 2020Q3

Private Consumption Public Consumption GFCF

Changes in inventories Exports Imports

GDP

9

Investment and export dynamics have been resilient across economic cycles


Latest developments | Economic activity

Investment contracted in Q2 amidst heightened uncertainty and decreased demand, but construction continued to grow

[Gross Fixed Capital Formation, YoY growth (%) and contributions (pp)]

Exports have been strongly affected by impaired global value chains and mobility restrictions worldwide

[Exports of goods and services, YoY growth (%) and contributions (pp)]

0.5

-40

-30

-20

-10

0

10

20

2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2018Q3 2019Q3 2020Q3

Others Other machinery Transport equipment

Construction Gross fixed capital formation

-15.2

-40

-30

-20

-10

0

10

20

2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2018Q3 2019Q3 2020Q3

Exports of Goods Exports of Services Total Exports

10

Latest developments | Labor market

The outbreak led to increased job requests and decreased job offers

[Labor market indicators, seasonally adjusted (%)]

Labor underutilization remains close to 2018 levels, despite a sharp increase since March

The short-term employment protection scheme has contained the impact on unemployment

Source(s): IEFP (LHS); Statistics Portugal (RHS).

[Job offers and job requests; year-on-year change (%)]

-40%

-30%

-20%

-10%

0%

10%

20%

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

Number of job requests Number of job offers

59

60

61

62

63

4

6

8

10

12

14

16

18

Unemployment rate Labour underutilization rate

Employment rate (RHS)

11

Despite a major shock, underlying labor market dynamics remain favorable

Latest developments | Labor market

The labor market is less fragmentedThe labor force is becoming more qualified

[Contributions per level of education to YoY Employment Rate, pp]


[Contributions per type of contract to YoY Employment Rate, pp | YoY Long-term unemployment, %]

-3.0

-6

-4

-2

0

2

4

6

2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2018Q3 2019Q3 2020Q3

No level of education First cycle

Second cycle Third cycle

Secondary and post-secondary Higher education

Employment

-50

-40

-30

-20

-10

0

10

20

30

40

50

-6

-4

-2

0

2

4

6

8

without a term Fixed term others Long-term unemployment (rhs)

12

Exports of goods are recovering, but the pick-up in services will take longer

Latest developments | External demand

The drop in the services surplus has been much offset by an improvement in the goods deficit

[Goods and Services Balance | 12m cumulative sum, EUR million]

Exports of goods seem to have stabilized at a level above 2016, whereas the fall in exports of services was more significant

[ Goods and Services Credit | 12m cumulative sum, EUR million]

Source(s): Banco de Portugal

-20,000

-18,000

-16,000

-14,000

-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

Feb

-20

May

-20

Au

g-2

0

No

v-2

0

Services Goods (rhs)

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

Feb

-20

May

-20

Au

g-2

0

No

v-2

0

Goods Services

13

Latest developments | High-frequency indicators

Even though business turnover indices recovered over the summer, they remain below 2019 levels

[Confidence indicators; year-on-year change (%)]

Confidence indicators in Portugal and the Euro Area have improved

The economy likely reached its trough in the second quarter

Source(s): Statistics Portugal (LHS); European Commission (RHS).

[Business turnover index; year-on-year change (%)]

-40%

-30%

-20%

-10%

0%

10%

Industry Retail Trade Services

-50

-40

-30

-20

-10

0

10

Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21

Euro Area - Economic Sentiment Indicator Euro Area - Employment Expectations Indicator

Portugal - Economic Sentiment Indicator Portugal - Employment Expectations Indicator




14

• Uncertainty still reigns. Macroeconomicprojections are a challenging exercise andhighly dependent on health developments.

• When the crisis emerged, Portugal hadtransitioned successfully to balancedgrowth, underpinned by robust privateconsumption, positive investment dynamicsand strong export growth. Continueddeleveraging efforts across institutionalsectors led to the effective correction of long-standing twin deficits.

• The proven flexibility of the economy is amajor asset, even though the relevance oftourism and other high-contact sectorsrepresents a challenge in the currentjuncture.

• The banking sector is better prepared toback the recovery. Financial stability benefitsfrom a stronger private sector, as well asadded liquidity support and regulatoryflexibility during the health crisis.

There is a general consensus about the recovery in 2021, but macroeconomic forecasts remain a challenging exercise

The post-pandemic reality is still highly uncertain

15Source(s): Statistics Portugal, Ministry of Finance (2021 Draft Budget), International Monetary Fund, European Commission..

Economic growth post-COVID | Macroeconomic outlook

Macroeconomic projectionsfor Portugal

Statistics Portugal

Ministry of Finance IMF European Commission Banco de Portugal

12 October 2020 13 October 2020 5 November 2020 10 December 2020

2019 2020 F 2021 F 2020 F 2021 F 2020 F 2021 F 2020 F 2021 F

Real GDP (yoy %) 2,2 -8,5 5,4 -10,0 6,5 -9,3 5,4 -8,1 3,9

Private Consumption (yoy %) 2,4 -7,1 3,9 n.a. n.a. -7,9 4,9 -6,8 3,9

Public Consumption (yoy %) 0,7 -0,3 2,4 n.a. n.a. 1,0 1,6 0,4 4,9

Gross Fixed Capital Formation (yoy %) 5,4 -7,4 5,3 n.a. n.a. -10,2 6,3 -2,8 4,4

Exports of goods and services (yoy %) 3,5 -22,0 10,9 -28,6 13,3 -21,0 9,7 -20,1 9,2

Imports of goods and services (yoy %) 4,7 -17,9 7,2 -22,1 14,3 -15,6 7,5 -14,4 8,8

Domestic demand contribution (pp GDP growth) 2,7 -6,6 4,1 n.a. n.a. -6,9 4,7 n.a. n.a.

Net exports contribution (pp GDP growth) -0,4 -1,9 1,3 n.a. n.a. -2,4 0,7 n.a. n.a

Employment growth (yoy %) 1,0 -3,8 1,0 -4,4 3,0 -3,8 2,1 -2,3 0,0

Unemployment rate (% labor force) 6,5 8,7 8,2 8,1 7,7 8,0 7,7 7,2 8,8

Net lending/borrowing of the economy (% GDP) 1,0 -0,3 0,9 n.a. n.a. 0,2 0,6 -0,6 0,5

Current account balance (% GDP) 0,2 -1,2 0,1 -3,1 -3,5 -0,9 -0,5 n.a. n.a.

GDP deflator (yoy %) 1,7 1,5 0,9 1,5 1,2 2,2 1,3 n.a. n.a.

Inflation (HICP, yoy %) 0,3 -0,1 0,7 0,0 1,1 -0,1 0,9 -0,2 0,3

Domestic tourism has cushioned the substantial decrease in non-resident travel

[Overnight stays (number) and revenues from tourism accomodation (year-on-year change, %)][Travel and Tourism (T&T) Key data for 2019]

Tourism plays a key role in the Portuguese economy, and remains one of the most affected sectors by COVID-19

16

The recovery will likely be slower and milder in the tourism sector...

Source(s): World Tourism and Travel Council, Banco de Portugal (LHS); Statistics Portugal (RHS).

Economic growth post-COVID | External demand

Contribution of T&T to GDP

Contribution of T&T to Employment

Balance of Payments: T&T exports as % Total Exports

Share of Residents in overall T&T spending

16,5%

18,6%

30%

6,2%Balance of Payments: T&T surplus as % GDP

19,7%

-120

-100

-80

-60

-40

-20

0

20

40

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Overnight stays | residents

Overnight stays | non-residents

Total revenues from tourism accommodation (rhs)

…but current account flows remain balanced, confirming a positive structural change

Source(s): Banco de Portugal.


Large trade balance deficits are in the past, driven by a structural increase of exports as a share of GDP

[12-month cumulative External Balance of Goods and Services, % GDP]

Although the services surplus decreased amidst COVID-19, so did the goods deficit: the current account remains balanced

[12-month cumulative Current and Capital Account, EUR million]

17

-12

-10

-8

-6

-4

-2

0

2

4

0

5

10

15

20

25

30

35

40

45

50

Exports of goods and services Imports of goods and services

External balance of goods and services (rhs)

-30,000

-22,000

-14,000

-6,000

2,000

10,000

18,000

26,000

Primary Income Secondary Income

Capital Account Goods

Services Current and Capital Accounts

Diversification and flexibility in goods exports are valuable assets

18Source(s): Statistics Portugal.


Exports of goods present limited sectoral/geographical concentration and have proven to evolve over time

[Major destination and sector as % total exports, YTD Jan-Sep 2020]

Others WORLDvs. 2000

(pp.)

Vehicles and parts, Aircraft 3,73 2,62 2,37 0,96 0,20 0,77 0,28 0,27 0,05 0,20 2,91 14,4 -0,1

Elec. and Mec. Machinery 2,48 1,52 3,49 0,86 0,49 0,43 0,31 0,25 0,43 0,29 3,78 14,3 -5,5

Textile Products 2,32 1,38 0,84 0,70 0,60 0,52 0,39 0,20 0,04 0,07 1,74 8,8 -9,8

Base Metals 2,62 1,43 0,55 0,41 0,32 0,09 0,18 0,17 0,15 0,06 1,59 7,6 2,1

Mineral products 2,26 0,93 0,78 0,32 0,33 0,29 0,38 0,22 0,09 0,12 1,44 7,2 3,6

Plastics and Rubber 1,81 1,02 0,22 0,48 0,29 0,53 0,18 0,17 0,18 0,11 1,71 6,7 2,6

Prep. Food, Beverages and

Tobaco1,16 0,39 0,67 0,34 0,38 0,21 0,21 0,25 0,21 0,08 2,23 6,1 2,1

Chemicals (incl. Pharma.) 1,28 0,24 0,09 0,07 0,90 0,11 0,30 0,35 0,03 0,01 2,57 5,9 2,8

Pulp of Wood and Paper 1,13 0,46 0,36 0,26 0,18 0,25 0,27 0,05 0,05 0,14 1,32 4,5 -0,8

Footware 0,27 0,70 0,65 0,17 0,14 0,08 0,44 0,06 0,01 0,04 0,61 3,2 -2,9

Others 6,23 2,99 2,04 0,91 1,22 1,01 0,83 0,41 0,43 0,22 5,09 21,4 -

TOTAL 25,3 13,7 12,1 5,5 5,1 4,3 3,8 2,4 1,7 1,3 25,0 100

Diversification and flexibility in goods exports are valuable assets

19Source(s): Statistics Portugal.


The Portuguese economy’s adaptability is key to address new dynamics in global trade

[Contributions (p.p.) of major destinations and sectors to YoY growth, YTD Jan-Sep 2020]

Spain Germany United kingdom France Italy Netherlands United States Angola Brazil Others WORLD

Vehicles and parts, Aircraft -0,4 -1,0 -0,5 -0,5 -0,5 -0,1 0,1 0,0 0,0 -0,9 -3,9

Mineral products -0,2 0,0 0,0 -0,1 0,1 -0,2 -0,5 0,0 0,0 -1,1 -2,0

Textile Products -0,7 0,0 0,0 0,1 -0,1 0,0 0,0 0,0 0,0 -0,3 -1,1

Base Metals -0,4 0,0 -0,1 -0,1 0,0 0,0 -0,1 -0,1 0,0 -0,2 -1,0

Plastics and Rubber -0,2 -0,1 -0,1 -0,1 0,0 -0,1 0,0 0,0 0,0 -0,2 -0,9

Manufactured Products -0,1 -0,1 0,0 -0,3 0,0 0,0 0,0 0,0 0,0 -0,1 -0,6

Footware -0,1 0,0 0,0 -0,1 0,0 -0,1 0,0 0,0 0,0 -0,2 -0,6

Animal Products -0,2 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,1 -0,3

Optical / medical / precision

instr.0,0 0,0 -0,1 0,0 0,0 0,0 0,0 0,0 0,0 0,0 -0,1

Vegetable Products 0,1 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,2

Prep. Food, Beverages and

Tobaco0,0 0,0 0,0 0,2 -0,1 0,0 0,0 0,0 0,0 0,1 0,3

Others -46,7 -41,2 -40,4 -24,7 -9,1 -13,6 -5,3 -28,8 -0,1 -0,6 -2,7

TOTAL -2,5 -1,6 -1,2 -1,0 -0,8 -0,7 -0,6 -0,6 0,0 -3,5 -12,7

The increase in GVA derives from sustained corporate investment

[Investment rate and Debt to Equity (2012=100) | GVA YoY growth, %)][Gross Value Added (2012=100) | Contributions to total GVA growth by industry, pp]

The production structure has become more diversified andoriented to the tradable sector

20

A solid production structure supports the increase in value added


Economic growth post-COVID | Domestic demand

100

111.42

-0.2 -0.2

0.00.3

1.0

2.6

3.6

4.4

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

80

85

90

95

100

105

110

115

-10.0%

-5.0%

0.0%

5.0%

10.0%

70

80

90

100

110

120

130

140

150

2012 2013 2014 2015 2016 2017 2018 2019

Investment rate Debt to Equity ratio GVA (rhs)

21

Corporates’ net financial position is stronger…

Source(s): ECB (LHS); Statistics Portugal (RHS).

Economic growth post-COVID | Financial stability

Strong decline of debt stock…

[Debt/GDP (%); Non-consolidated]

…without hampering fixed investment

[NFC debt and NFC fixed investment as % of GDP]

8%

9%

10%

11%

12%

13%

14%

15%

16%

75%

90%

105%

120%

135%

150%

165%

180%

Sep

/02

Sep

/04

Sep

/06

Sep

/08

Sep

/10

Sep

/12

Sep

/14

Sep

/16

Sep

/18

Sep

/20

NFC debt/GDP (LHS) NFC Fixed investment % GDP (RHS)

97.0

146.2

111.3

134,8

134.3

80

110

140

170

200

Germany Spain Euro Area Italy Portugal

22

…as firms began generating (and using) own resources



NFC profitability levels restored from historic lows…

[Return on equity and Fixed investment as a % of GVA]

…and NFC savings rate remains above 2008 levels

[NFC savings and investment as a % of GVA]

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

NFC - Return on equity NFC - Fixed investment (% of value added, RHS)

5%

10%

15%

20%

25%

30%

35%

NFC - Investment rate NFC - Savings rate

23

Households’ net financial position has also improved

Source(s): Banco de Portugal (LHS); ECB (RHS).


The saving rate stabilized, and disposable income grew steadily…

[%]

…in tandem with deleveraging

[Debt/GDI (%); Non-consolidated; Nominal values]

49

49

50

50

51

51

52

52

53

53

-4

-2

0

2

4

6

8

10

12

14

16

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Gross Disposable income, yoy% (RHS) Saving rate (% of GDP) Participation rate (%)

88.8

96.9

63.6

94,1

93.0

30

50

70

90

110

130

Germany Spain Euro Area Italy Portugal

7.4

8.7

11.5

12.2

11.3

12.4

11.4

13.9

13.2

14.3

4

6

8

10

12

14

16

18

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

150.6

135.0

122.5

111.7

102.0

96.1 95.592.5

89.087.1

70

80

90

100

110

120

130

140

150

160

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

24

Banks strengthened capital and liquidity levels…



More stable funding structure

[Loans to Deposits Ratio, %]

Higher capital levels in a challenging context

[Core tier 1 | Common Equity tier 1, %]

Total Capital Ratio

13,4 12,3 13,3 12,312,69,810,3 15,2 15,2 16,9

2017 2018 2019 2020H12020H1

vs. 2019H1

CGD

Net income 52 496 776 249 -40,3%

Net interestincome

1241 1183 1132 520 -8,0%

BCP

Net income 186 301 302 76 -55,2%

Net interestincome

1391 1424 1549 759 2,6%

NovoBanco

Net income -1395 -1413 -1059 -555 -38,8%

Net interestincome

395 454 541 271 3,2%

25

…while actively addressing remaining challenges

Source(s): Banco de Portugal (LHS); Caixa Geral de Depósitos, Millennium BCP, Novo Banco (unaudited results, as disclosed in quarterly earnings presentations).


Asset quality improved significantly

[NPL ratio by type of loan, as % of gross credit; end of period]

Positive developments in major Portuguese banks

[Earnings of Significant Banks in EUR million; year-on-year change in %]

45,9 49,4 52,845,3

[Coverage ratio, impairments as % of total non-performing loans; end of period]

29.5

27.5

25.2

22.3

18.5

16.6

12.3

11.9

11.1

10.6

16.2

15.0

13.1

12.6

10.5

8.9

8.2

8.7

8.6

8.4

7.0

6.5

5.7

4.9

3.8

3.2

2.4

2.3

2.2

2.1

17.215.4

13.311.7

9.48.3

6.2 6.0 5.5 5.3

0

5

10

15

20

25

30

35

2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 2019Q4 2020Q1 2020Q2 2020Q3

NFC Consumption Housing Total

52,0 52,2 51,5 51,3 53,1 55,9

Over the medium-term, the economy’s revival will be boosted by EU funds

26(*) The Recovery and Resilience Facility also foresees EUR 15.7 bn in loans. Portugal has announced it shall use the full amount of grants before considering the use of RRF loans.

Economic growth post-COVID | Recovery and Resilience

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

PT 2020 (MFF 2014-2020)

» EUR 12.8 bn

Multiannual Financial Framework 2021 - 2027

» EUR 29.8 bn

Recovery and Resilience Facility (RRF) » EUR 12.9 bn (*)REACT EU » EUR 1.8 bn

Rural Development & Just Transition Fund » EUR 445 M

Recovery Plan for Europe

» EUR 15.3 bn in Grants (*)

EUR 57.9 bn in EU grants + State Budget

EU grants under the Recovery and Resilience Facility (13,9 bn€) will finance reforms and investments under 9 core objectives

The path to sustainable and inclusive growth is outlined in the Recovery and Resilience Plan

27Source(s): Portuguese Government, Preliminary Recovery and Resilience Plan (October 2020).

Climate Transition

[21%]

Digital Transition

[20%]

Resilience

[59%]

Fighting social vulnerability

• Enhanced care through National Health Service• Affordable housing (incl. renovation work)• Social response (focus on ageing and early years)• Fighting poverty in largest urban areas

3,5 bn€ Growth potential, Employment

• Reindustrialization (new products, agribusiness)• Mobilization of scientific community• Improved qualifications and skills (vocational

training, STEAM education and training)

2,8 bn€ Competitiveness, Cohesion

• Upgraded infrastructure (nationwide)• Forestry (incl. landscaping and fire prevention)• Water management (Algarve, Alentejo)

1,9 bn€

Digital schools

• Technological equipment and infrastructure• Remote learning• Enhanced digital skills (teachers)

0,5 bn€ Corporations 4.0

• Enhanced digital skills (labor force)• Renewed business models

0,7 bn€ Digital Public Administration

• Simple and accessible public services• Enhanced digital skills (public servants)• Cybersecurity• Digital reform in Justice, Social Security, Health

Asset Management

1,7 bn€

Sustainable mobility

• Reform of public transportation network and equipment (incl. expansion of metro network in Lisboa and Porto)

1,0 bn€ Decarbonization, Bioeconomy

• Decarbonization of the industrial sector• Bioeconomy (focus on textile and clothing, shoe

industry and resin industry)

0,9 bn€ Energy efficiency, Renewables

• Buildings' energy efficiency (renovation work)• National Strategy for Hydrogen

1,0 bn€

Economic growth post-COVID | Recovery and Resilience




28

• Debt sustainability is enhanced on the backof prudent fiscal policy and active debtmanagement, amid economic revitalization.

• Fiscal discipline is the norm, but a temporaryincrease in the deficit is inevitable toovercome the health crisis, and the ensuingeconomic and social shock.

• Debt issuance remains anchored in acomprehensive funding strategy, which isalso flexible in periods of higher volatility.

• The public debt structure is resilient: thestock is diversified and more affordable, whilerisk indicators remain low.

• Market conditions have improvedsubstantially and creditworthiness is widelyrecognized.

0

20

40

60

80

100

120

140

160

180

Euro area Spain Italy Portugal

-12

-10

-8

-6

-4

-2

0

2

4

6

Euro area Spain Italy Portugal

EC forecasts

EC forecasts

Enhanced debt sustainability anchored in prudent policies and active debt management

Source(s): European Commission | Autumn 2020 Economic Forecast

Financing the recovery | Enhanced debt sustainability

Strong and continued primary surpluses…

[% of GDP]

…supported a marked reduction in public debt

[EDP gross debt, % of GDP]

29

2021 Draft Budget foresees additional policy support, expected to be phased out when the economy returns to pre-COVID levels.

Policy efforts remain focused on supporting the economy and social welfare

30Source(s): Statistics Portugal (2018-2019) and Ministry of Finance (2021 Draft State Budget).

General Government Accounts(Accrual basis, as % of GDP)

2018 20192020

Estimate2021

Budget

Total revenue 42,9 42,7 42,6 43,5

Current revenue 42,4 42,4 42,0 42,2

Current taxes on income and wealth 10,1 9,8 9,3 9,4

Taxes on production and imports 15,1 15,0 14,5 14,5

Social contributions 11,6 11,8 12,5 12,2

Sales 3,5 3,5 3,3 3,3

Other current revenue 2,2 2,3 2,5 2,8

Capital revenue 0,5 0,3 0,6 1,2

Total expenditure 43,2 42,7 49,9 47,8

Current expenditure 40,2 39,7 45,6 43,7

Social benefits 18,2 18,2 20,5 19,9

Compensation of employees 10,7 10,7 12,0 11,7

Interest 3,4 3,0 2,9 2,6

Intermediate consumption 5,3 5,2 5,8 5,7

Subsidies 0,4 0,4 1,6 0,9

Other current expenditure 2,3 2,2 2,9 3,0

Capital expenditure 3,0 2,9 4,2 4,1

Gross Fixed Capital Formation 1,8 1,9 2,5 2,9

Other capital expenditure 1,2 1,1 1,8 1,2

Overall Balance -0,3 0,1 -7,3 -4,3

Primary Balance 3,0 3,1 -4,3 -1,7

Current revenue decreased in 2020 largely due to automatic stabilizers and should recover in 2021, on the back of stronger tax revenue and EU funds directed at employment support.

The estimated capital revenue in 2021 includes part of RRF funds, but is mostly driven by a positive one-off (reimbursement of the EFSF loan pre-paid margin, amounting to 0.5% GDP)

In 2021, key COVID-19 measures should decrease in size, which relieves the pressure on intermediate consumption (health sector), subsidies (employment support) and other capital expenditure (rescue aid to PT airline) and…

Preliminary data suggest the 2020 deficit fell below the 7,3% estimate. Still, the 2021 deficit may be revised upwards, as worsening health conditions call for a new lockdown in January and additional policy support measures.

…gives way to infrastructure investment (e.g. transportation network, school network, hospitals, defense), further income support to households (social benefits) and the improved remuneration policy in Public Administration.

Financing the recovery | Sound fiscal policy

31

The public debt ratio will resume a downward trend in 2021

Source(s): Statistics Portugal, Banco de Portugal and Ministry of Finance (fiscal projections, 2021 Draft State Budget).

Financing the recovery | Sound fiscal policy

Public debt decreased 15,7 pp over 2014-2019, but COVID-19 impacts will be severe

[Maastricht debt, % GDP] [pp GDP]

The debt trajectory remains anchored in favorable metrics and a firm commitment to fiscal stabilization

YEAR 2018 2019 2020F 2021F

Maastricht debt (% GDP) 121,5 117,2 134,8 130,9

Annual change (pp GDP) -4,7 -4,3 17,6 -3,9

Primary balance effect -3,0 -3,1 4,3 1,7

Snowball effect -2,3 -1,6 11,8 -5,4

Interest costs 3,4 3,0 2,9 2,6

Nominal GDP -5,7 -4,6 8,9 -8,0

Stock-flow adjustments 0,7 0,4 1,4 -0,2

Real growth rate (yoy%) 2,8 2,2 -8,5 5,4

GDP deflator (yoy%) 1,8 1,7 1,5 0,9

Overall balance (%GDP) -0,3 0,1 -7,3 -4,3

Primary balance (%GDP) 3,0 3,1 -4,3 -1,7

Interest costs (%GDP) 3,4 3,0 2,9 2,6

103.9

117.1 118.9 120.7 121.1 119.5116.0

113.4110.4

126.9124.2

10.5

11.912.5

12.3 10.1 12.0

10.1

8.1

6.8

7.9

6.7

114.4

129.0131.4

132.9131.2 131.5

126.1

121.5

117.2

134.8

130.9

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

GenGov debt net of GenGov deposits GenGov deposits GenGov gross debt

Prudent and stable funding plan, with embedded flexibility

32

Financing the recovery | Prudent debt issuance

State’s Borrowing Needs and Sources

[Executed financing up to end-January; EUR billion]

Source(s): IGCP and Ministry of Finance.

(a) State sub-sector cash deficit in 2017-2021.

(b) Includes refinancing of other public entities (namely SOEs) and credit lines to the Single Resolution Board and the National Resolution Fund.

(c) Includes other operations that impact net financing needs (e.g. bank recapitalization in 2012-2013, privatization revenues).

(d) Includes net impact of exchange offers.

(e) Includes centralization of funds of other public entities in the Single Treasury Account.

(f) Excluding cash-collateral.

2017 2018 2019 2020 2021 P

State borrowing requirements 28,3 20,3 19,2 24,6 25,6

Net financing needs 10,4 7,3 9,5 16,8 14,0Overall deficit (a) 4,8 3,7 3,9 12,2 10,0Net acquisitions of financial assets (b) 5,2 3,7 5,6 4,6 4,0One-off operations (c) 0,4

MLT Redemptions 17,9 13,0 9,7 7,7 11,6Tbonds (PGB + MTN)

(d)7,9 7,5 7,7 7,7 8,1

FRN/OTRV 3,5Official loans 10,0 5,5 2,0

State financing sources 28,3 20,3 19,2 24,6 25,6

Use of deposits 0,4 0,5 2,5 -10,2 6,7

Financing in the year 27,9 19,9 16,7 34,8 18,9Executed 27,9 19,9 16,7 34,8 -0,1

EU 3,0Tbonds (PGB + MTN) 15,1 16,4 15,7 27,2 1,3FRN/OTRV 3,5 1,0Retail debt (net) 2,8 1,3 0,8 0,7Tbills (net) 0,3 -1,8 -1,4 -0,5 -1,4Other flows (net) (e) 6,2 2,9 1,6 4,4

To be executed 19,0EU 2,9Tbonds (PGB + MTN) 13,7FRN/OTRVRetail debt (net) 0,0Tbills (net) 1,4Other flows (net) (e) 1,0

State Treasury cash position at year-end (f) 9,8 9,3 6,8 17,0 10,4

Primary market issuance supports liquidity in different points of the curve

[Medium- and long-term debt issuance per bucket; EUR billion and % of total][Medium- and long-term debt issuance per method of issuance; EUR billion and % of total]

In 2020, syndications regained a key role in the annual funding plan

33

Regular issuance of MLT debt through different channels and across the curve

Source(s): IGCP.


21% 51% 100%22%

2%

25%

41% 53%

22%9%

35%

44%

21%

2%7%

8%

15%26%

10%

7%

7%

13%

34%

38%

8%

25%

46%

46%

48%45%

52%

65%

39%

7%

17%

19% 8%2%

19% 19%

19%

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

<4[ [4-6[ [6-9[ [9-13[ >=13

12% 41%45%

48%47%

25%

15%

37%

22%

49%

77%

47%

20%

36%

45%

55%

47%

54%

47%

0%

100%

55%

9%

17%

5% 14%10%

23%

4%

11%

12%

23%8%

1%

16%17%

5%

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Syndications Auctions Exchanges MTN Issuance OTRV/FRN

Debt issuance is supported by a diversified and broadening base of debt holders

34Source(s): HRF Reports


The most buyers of PGBs in 2020 were Banks and Central Bank (excl. ECB purchase programs) & Other Public Entities

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-2015 – by type]

-9,000

-4,000

1,000

6,000

11,000

16,000

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20

Banks Central Bank & Other Public Entity Pension Fund Insurance Company Fund Manager Hedge Fund Retail

35

Debt issuance is supported by a diversified and broadening base of debt holders

Source(s): HRF Reports


A positive contribution from Italy (Other EU) and Spain in 2020…

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15 – by region (top 5)]

…and improved interest from Asian investors

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15 – by region]

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

De

c-1

8

Mar

-19

Jun

-19

Sep

-19

De

c-1

9

Mar

-20

Jun

-20

Sep

-20

Spain Other EU France Portugal UK

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

De

c-1

8

Mar

-19

Jun

-19

Sep

-19

De

c-1

9

Mar

-20

Jun

-20

Sep

-20

Germany/Austria/Swit North AmericaAsia BeneluxOther Nordics

36

Debt composition reveals diversification and stability

Source(s): IGCP

Financing the recovery | Resilient debt structure

PGBs are the main funding instrument

[EUR billion and % of total State Direct Debt]

The share of Eurosystem holdings in total debt securities hasincreased

[EUR billion and % of State direct debt securities]

69% 70%59% 48% 45%

43% 46% 47% 49% 51%52%

4%6%

6%

6%

13% 13%7% 9% 9%

7%7%

6%6%

6%

5%

13%11%

7% 6% 6%8%

9%10%

11% 12%

12%

0%21%

32%35%

36%

32%29%

24% 21%

20%4% 5%

152

175

194204

217 226236 238 246

251

268

0

40

80

120

160

200

240

280

Dec/10 Dec/11 Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/19 Dec/20

OT / PGB Outros MLP / Other MLT

BT / Tbills Outros CP / Other ST

Retalho / Retail Empréstimos oficiais / Official loans

Outra não transacionável / Other non-tradable TOTAL

46% 47% 43% 37%40% 39% 38% 34% 32% 31% 30%

1% 1%1% 9%

17%19%

20% 22%24% 26% 28%

19% 16%

12%10%

9%8%

7% 6%

6% 5% 5%

34% 36%44%

44%

34%

35%35% 37%

38% 38% 38%

0

20

40

60

80

100

120

140

160

Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/19 May/20 Jul/20 Sep/20

Não residentes (excl. BCE) / Non-residents (excl. ECB)

BCE (SMP+PSPP+PEPP) / ECB (SMP+PSPP+PEPP)

Banco de Portugal

Residentes excl. BdP / Residents excl. BdP

37

Affordability improved substantially and refinancing risk remains low

Source(s): IGCP


Sustained decline in the cost of debt, driven by lower issuancecosts

[%]

Post-crisis average maturity remains steady around 8 years

[Years]

4.5

5.8

4.2 4.4

3.7

2.7 2.82.6

1.8

1.1

0.5

3.5

4.13.9

3.6 3.6 3.4 3.2

3.02.8

2.5

0

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cost of issuance per year Cost of debt outstanding

4.0

3.0

6.0

9.6

12.1

8.8

7.8

10.310.7

10.0

0

2

4

6

8

10

12

14

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

Average residual maturityAverage residual maturity exc EU-IMF loansAverage maturity of MLT debt issuance in each year

5,7

6,1

5,3 5,15,5

6,7 6,5 6,46,2 6,2 6,4

6,9

8,2 8,28,8

8,3 8,1 7,8 7,5 7,4

Debt buybacks and exchange offers contribute to a smoother redemption profile

38Source(s): IGCP


PGBOutrightbuybacks

Exchange offers

Bought Sold

OT Jun 2020 45

OT Apr 2021 1 641 -

OT Oct 2022 684 -

OT Oct 2028 - 592

OT Jun 2029 - 1 733

TOTAL 2020 45 2 325 2 325

0

3

6

9

12

15

18

21

24

2021 2025 2029 2033 2037 2041 2045 2049

BT / Tbills

FEEF / EFSF

MEEF / EFSM

MEEF (maturidade final a confirmar) / EFSM (final maturity to be confirmed)

SURE

Outra dívida de médio e longo prazo / Other medium and long term debt

Outstanding credit as of December 2020 IGCP executed two PGB exchanges in 2020

[Redemption calendar debt; December-2020 + rollover EFSM; EUR billion] [Amounts in EUR million]

39

PGB yields continue to trade at historical lows

Source(s): Bloomberg

Financing the recovery | Improved market conditions

Portuguese yields declined sharply in all maturities…

[Secondary market yields, %]

…prompting a convergence with other EA issuers

[10-yr secondary market yields, %]

-100

0

100

200

300

400

500

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

2y 5y 10y 30y

-100

100

200

300

400

500

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

PT IT SP FR GE

40

Trading volumes and bid-offer spreads were impacted by COVID-19

Source(s): BTEC, eSpeed, MTS,HRF reports, IGCP (LHS); Bloomberg (RHS).


Average daily turnover decreased in 2020 but remains close to levels recorded one year before

[PGB trading in secondary market yields, average daily turnover in EUR million

Bid-offer spreads widened significantly in March, but tightened shortly after

[PGB bid-offer spreads, 1M moving average (basis points)]

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

Oct

-20

Over-the-counter OT Platforms OT OT 12M Moving Average

0

20

40

60

80

100

120

140

160

180

10Y 5Y

-50,000

-30,000

-10,000

10,000

30,000

50,000

70,000

90,000

-1,000

-500

0

500

1,000

1,500

2,000

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-19

Jun

-19

Sep

-19

Dec

-19

Mar

-20

Jun

-20

Sep

-20

Dec

-20

Monthly net Purchases according to capital key (january 2020)

Monthly net purchases of PGB

Overall Target APP Purchases

Re

inve

stm

en

t p

has

e

41

The Eurosystem remains an important player in the market

Source(s): ECB and Bloomberg.


The ECB is still actively buying PGBs under PSPP…

[EUR million]

…while PEPP has been crucial for the smooth transmission of single monetary policy

[LHS: ECB Total Net Purchases, net changes in EUR million. RHS: 10-yr secondary market spreads, basis points]

-20

0

20

40

60

80

100

120

0

5

10

15

20

25

30

35

40

45

50

27-Mar 05-Jun 14-Aug 23-Oct 01-Jan

PEPP PSPP PGB 10y

Rating upgrades unraveled a new paradigm, supporting the reentry in main benchmark indexes

42Source(s): DBRS, Fitch, Moody’s and Standard & Poor’s

Financing the recovery | Recognized creditworthiness

Portugal rating timeline

Positive Rating Drivers

Government’s ongoing commitment to fiscaldiscipline and debt reduction

Pursuit of macroeconomic reforms that supportnear-term growth and boost growth potential

Enhanced growth supporting the decline in thedebt burden

Negative Rating Drivers

Erosion of public debt trend sustainability

Weaker-than-expected economic growth

Unforeseen material capital support to thebanking sector

Reversal of previous reforms (including pensionor labor market reforms)

BBB+

Baa3

BBBBBB

-4

-2

0

2

4

6

8

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

DBRS Moody's Fitch S&P

AA/Aa2

AA-/Aa3A+/A1

A-/A3

BBB+/Baa1

BBB/Baa2

BBB-/Baa3

BB+/Ba1

BB/Ba2

BB-/Ba3

• GDP growth • General Government balance (% GDP)• General Government debt (% GDP)• Interest Costs (% GDP)• Current and Capital Account (%GDP)• NPL ratio (year-end)

Portugal has weathered the 2020 crisis on the back of solideconomic and financial developments

2021 rating decisions

43

The Republic’s creditworthiness is supported by strong fundamentals

Source(s): DBRS, Fitch, Moody’s and Standard & Poor’s. (*) The Credit Rating Agency took no action on the rating publication date.

Financing the recovery | Recognized creditworthiness

• Broad investor base, with increasing participation fromreal money investors

• Strong retail market (Treasury certificates, FRN)• Marked improvement in financing conditions• Resilient public debt structure (FX, interest rate,

refinancing)

• Average GDP growth of 2,4% (over 2015-2019), above euro area average (2,0%)

• Unemployment rate at 6,5% (2019), below euro area average (7,6%) and 9,7 pp down from the peak (2013)

• Strong institutions compared with similarly rated peers

Mainindicators

2019

TreasuryFinancing

EconomicStrengths

2,2%0,1%

117,2%3,0%0,9%6,2%

DBRS Fitch Moody’s S&P

Current BBB(high) / Stable BBB / Stable Baa3 / Positive BBB / Stable

Feb-21 26/Feb

Mar-21 19/Mar 12/Mar

May-21 14/May

Aug-21 27/Aug

Sep-21 17/Sep 10/Sep

Nov-21 12/Nov

Annex

44

Long-term perspective

Potential GDP accelerated strongly, but COVID-19 requires renewed efforts

The energy transition remains a top priority

Demographic trends require close monitoring and timely action

Foreign investment

Although external debt remains high, the composition of NIIP improved considerably

Tourism

Before the pandemic, the tourism industry was growing steadily

Investment

Investment in construction mirrors favorable dynamics in the housing market

Banking system

NPL levels are improving compared to other Euro Area countries

EU/IMF loans

Early repayments have allowed for a material reduction in credit outstanding

-2

-1

0

1

2

3

4

90

95

100

105

110

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020F 2022F

Portugal Euro area Spain Italy Germany

45

Looking to the long-term, potential GDP accelerated strongly, but COVID-19 requires renewed efforts

Source(s): European Commission

Long-term perspective | Potential growth

Acceleration of TFP, surpassing the EA average…

[Total factor productivity: total economy (2015 = 100)]

…prompting potential GDP growth to stabilize above EA average

[Potential GDP, YoY growth (%)]

EC forecasts EC forecasts

46

The energy transition remains a top priority

Source(s): European Commission and Portuguese Government

Long-term perspective | Energy transition

The Commission’s European Green Deal The Government’s commitment is fully aligned with the EU plan

• The Government’s policy agenda for 2019-2023 actively addresses climatechange while ensuring a fair transition. The encompassing strategy is basedon four pillars:

Established commitment of carbon neutrality by 2050(decarbonization; energy efficiency; “green taxes”; “greenfinancing”)

Focus on urban public transportation, electrical mobility,soft mobility, train industry

Paradigm shift in production and consumption; efficientprocesses across sectors, boosted by action in publicprocurement; improved waste management; improvedwater use; commitment to environmental education

Preparation for climate change and disasters; preservationof biodiversity; structural reform in agriculture; forest andcountryside conservation; exploit the full potential ofocean resources

• The European Union will:

Become climate-neutral by 2050;

Protect human life, animals and plants, by cutting pollution;

Help companies become world leaders in clean products andtechnologies;

Help ensure a just and inclusive transition.

Sustainableindustry

Buildingand

renovating

Sustainablemobility

From Farmto Fork

Eliminatingpollution

Biodiversity

Cleanenergy

Energy Transition

Sustainablemobility

Circular Economy

Promotion of landand resources

The quality of institutions is well-established

[Worldwide Governance Indicators, 2019 Update | Percentile rank among all countries, %][Share of energy from renewable sources, 2018 (%)]

The potential in renewable energy has been successfully exploited

47

Portugal ranks favorably in ESG metrics

Source(s): Eurostat and World Bank

Long-term perspective | Energy transition

0

5

10

15

20

25

30

35

40

45

75

80

85

90

Rule of Law Government Effectiveness Political Stability

2008 2018

48

Demographics remains one of the most important long-term challenges

Source(s): Banco de Portugal and European Commission

Long-term perspective | Demographics

Population growth has been picking up since 2013…

[% GDP]

…but the weight of the elderly rises significantly

[Variation in age ranges’ weight in the total population (2018-2001) ]

-4 -2 0 2 4 6 8

Belgium

Spain

Ireland

Austria

France

Euro area

Italy

Greece

Slovakia

Estonia

Germany

Portugal

Slovenia

Netherlands

Finland

Population 65 and over Population under 15

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

0

500

1000

1500

2000

2500

Population | 65y and over Population 0 to 14y Total population yoy growth (RHS)

49

Population aging is likely to impact the labor force and public spending

Long-term perspective | Demographics

EU projections signal a deterioration in the old dependency ratio

[Old dependency ratio (population 65 and over to population 15 to 64 years)]

Long-term impacts on public accounts require monitoring

Social Protection (health care) expenditure as % GDP) | Expenditure on Pensions as % of GDP

Sources: Eurostat

25

35

45

55

65

2019 2025 2035 2045 2055 2065 2075 2085 2095

Italy Portugal Euro Area Spain

5

6

7

8

9

10

2007 2017

8

10

12

14

16

2007 2017

External liabilities shifted to more stable components

[Net international investment position (% GDP)][Foreign Direct Investment in Portugal (% GDP)]

The lion’s share of FDI flows is equity-based

50

The NIIP composition has improved considerably, benefitting from increased FDI flows


External position | Improving composition of NIIP

67.8

0

10

20

30

40

50

60

70

80

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

FDI - Equity FDI - Debt instruments FDI - Total

-160

-140

-120

-100

-80

-60

-40

-20

0

20

40

-140

-120

-100

-80

-60

-40

-20

0

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Direct investment Portfolio investment Financial derivatives

Other investment Reserve assets Total NIIP - Net (LHS)

51

Tourism | Sustained growth pre-COVID19

As the sector expanded, a more diversified geographic base strengthened demand…

[Overnight stays (number) and revenues from tourism accomodation (year-on-year change, %)]

…which translated into a sustained increase in revenues

Before the pandemic, the tourism industry was growing steadily


[% of Tourism and Travel on Services Account and GDP]

30.9%23.3% 23.0% 23.3% 22.9% 20.8% 19.6% 19.2%

16.3%

13.9% 13.7% 14.1% 13.8%14.2% 13.3% 12.0%

11.4%

13.9%11.1% 10.7% 10.4%

9.3% 10.3% 10.7%

4.7%

6.9%9.6% 10.0% 10.5%

9.6% 9.8% 9.3%

7.0%

7.8% 6.5% 6.3% 6.4%5.8% 5.4% 5.5%

1.7%3.5% 4.3% 3.8% 3.9%

5.2% 5.5% 6.0%

3.0%3.7% 2.8% 3.1% 3.1%

3.3% 3.4% 3.5%

2.4%2.4%

2.6% 2.9% 3.1%3.8% 4.7% 4.8%

22.5% 24.6% 26.5% 25.8% 25.7% 27.6% 28.1% 28.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2014 2015 2016 2017 2018 2019

UK Germany Spain France Netherlands Brazil Italy USA Others

35

37

39

41

43

45

47

49

51

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2013 2014 2015 2016 2017 2018 2019

Total revenue in tourist accomodation estabilishments

Net bed occupancy rate in tourist accommodation (rhs)

Supply and demand are now rebalancing

[Units | YoY, %][Current prices; 100=2015; M€]

The increase in prices has stabilized and reflects growing demand

52

Investment in construction mirrors favorable dynamics in the housing market


Investment | Construction & Housing market

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

-15

-10

-5

0

5

10

15

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

Q1

20

16

Q3

20

17

Q1

20

17

Q3

20

18

Q1

20

18

Q3

20

19

Q1

20

19

Q3

20

20

Q1

20

20

Q3

Existing home sales New home sales

Home price index_total (YoY, %) Home price index_existing (YoY, %)

Home price index_new (YoY, %)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

0

1000

2000

3000

4000

5000

6000

7000

8000

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-19

Jun

-19

Sep

-19

Dec

-19

Mar

-20

Jun

-20

Sep

-20

CPI (new buildings) - yoy New buildings concluded - units

Transactions (new dwellings) - units

53

Portuguese banks’ NPL levels are also improving compared to EA countries

Source(s): European Banking Authority

Banking System | NPLs across the EU

The decrease in the NPL ratio is equally significant when considering a sample of larger banks…

[NPL ratio, %; end of period]

…although the level of NPLs remains high

[NPL ratio, %]

Sovereign 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3

Austria 2.4 2.3 2.1 2.1 2

Belgium 2 2 1.9 2 1.9

Cyprus 21.1 19.3 20.1 15.5 14.3

Denmark 1.8 1.8 1.8 1.9 1.9

Estonia 1.7 1.5 1.5 1.5 1.3

Euro Area 19 2.9 2.7 3 2.9 2.8

Finland 1.5 1.4 1.5 1.6 1.6

France 2.6 2.5 2.4 2.3 2.3

Germany 1.2 1.3 1.2 1.3 1.2

Greece 37.4 35.2 34 30.3 28.8

Ireland 4.3 3.3 3.3 4 4

Italy 7.2 6.7 6.4 6.1 5.4

Latvia 2.2 1.9 1.7 1.8 1.8

Lithuania 1.7 1.5 1.4 1.4 1.2

Luxembourg 1.1 0.9 1 1.1 1.4

Malta 3 3 3 3.5 3.3

Portugal 8.3 6.5 6.2 5.7 5.5

Slovakia 2.6 2.6 2.6 2.5 2.3

Slovenia 4.7 3.7 3.5 3.2 3.2

Spain 3.4 3.2 3.1 3 3

the Nederlands 2 2 1.9 2 1.9

19.1% 19.5%

15.2%

10.1%

6.5%5.5%5.8%

5.1%4.0%

3.2%2.7% 2.8%

0%

5%

10%

15%

20%

25%

2015Q4 2016Q4 2017Q4 2018Q4 2019Q4 2020Q3

PT IT ES EU/EEA

Outstanding credit as of December 2020

EU-IMF loans are being paid ahead of schedule

Early repayments of official loans have allowed for a material reduction in credit outstanding

54Source(s): IGCP

EU/IMF loans | Credit outstanding

EntityAmount disbursed

(EUR billion) Estimated all-in-cost

Final average maturitysince disbursement date

(years)

Outstanding(EUR billion)

Final averageresidual maturity

(years)

EFSM 24,1 2,6% 19,5 24,3 10,5

EFSF 26,0 1,6% 20,4 25,3 13,0

Payments in SDR million EUR million

2015 IMF 6 579 8 448

2016 IMF 3 560 4 496

2017 IMF 8 232 10 013

2018 IMF 4 571 5 515

Total IMF payments: 22 942 28 472

IMF loan was fully repaid by December 2018 EUR 2 billion were

paid to the EFSF in October 2019

Payments in EUR million

2019 EFSF 2 000

Total EU payments: 2 000

Web site: www.igcp.ptBloomberg pages: IGCPReuters pages: IGCP01

Disclaimer

The information and opinions contained in this presentation have been compiled or arrived at from Source(s)s believed to be reliable and in good faith, but norepresentation or warranty, express or implied, is made as to their accuracy, completeness or correctness.

All opinions and estimates contained in this document are published for the assistance of recipients, but are not to be relied upon as authoritative or taken insubstitution for the exercise of judgment by a recipient and, therefore, do not form the basis of any contract or commitment whatsoever.

IGCP does not accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

55

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