Three months into the Covid-19 crisis, Portugal features among countries that have shown particular resilience to disruption the virus has wrought. Although the initial Covid-19 wave appeared less intense in Portugal than in other countries in the region, the country as a whole took no chances.

The civil society, the private sector and the government acted early and swiftly to prevent the kind of spiralling health emergencies seen in other countries where the crisis response has been slower and more confused.

The economy inevitably took a hit, particularly from the shut down of the tourism industry, but early action secured relatively high levels of business continuity. Portugal is now trying to turn this early resilience into recovery potential as the country eases lockdown measures and reopens its tourism industry to rescue the summer season.

Covid-19 containment

With one of Europe’s lowest ratios of available intensive care units (ICUs) – at the start of the crisis, the country had 4.2 ICUs per 100,000 people, against a European average of about three times as much – and the world’s third highest percentage of population over 65, Portugal had a slim margin for error entering the Covid-19 crisis.

“The recent experience with the debt crisis and the understanding that they don’t have room to take chances significantly formed the government’s response,” says James Lockhart Smith, head of financial sector risk at consultancy Verisk Maplecroft.

Aware of the worrying developments in other European countries, the Portuguese government moved swiftly to activate a ‘worst case scenario’ in a very early stage of the domestic epidemic. It shut down schools and universities on March 16, when the country had registered 112 cases and no fatalities. Six days later, it declared a state of national emergency and went into full lockdown with 448 confirmed cases. As a reference, Italy went into full lockdown on March 9, when confirmed cases already exceeded 9,000; Spain on March 14 with 6,271 cases; the UK on March 23 with 6,650 confirmed cases.

In the following weeks, Portuguese authorities doubled ICUs and ramped up testing much faster than almost any other European country, in addition to heavily engaging with private testing labs. By the end of May, Portugal was running 83 tests per thousand people, twice as much as in the UK, and second only to Iceland, Luxemburg, Lithuania and Denmark among OECD countries.

“As a foreigner living and working in Portugal I’ve been impressed,” Luis Cardoso, who heads Nestlé’s shared services centre in Lisbon, tells fDi. “We really saw the government take action at the right time, with the population being supportive and avoiding going out.”

Business continuity efforts

While containing the health emergency, the government tried to limit the economic damage caused by Covid-19 immediately, announcing on March 18 a €9.2bn stimulus package.

If the tourism industry, which accounts for 16.5% of the country’s GDP, ground to a halt, the rescue package granted other sectors a greater level of business continuity, from services to manufacturing and construction.

“We started monitoring which companies were most impacted, and tried to maximise their performance under the new rules,” says Luís Filipe de Castro Henriques, CEO of national trade and invest agency Aicep. “We tried to keep up production levels as much as possible, because the national and external customers of the country needed to know we were trying to do as much as possible [to guarantee business continuity]. We had a slowdown, but never fully stopped operating and working.”

In mid-April, before the government unveiled a phased removal of lockdown measures, the level of companies that remained in production or operation, even if partially, stood at 83%, according to a survey by national statistics institute (INE), with a peak of 92% in construction and real estate, and a low of 41% in accommodation and food services.

“We didn't need to stop anything,” confirms Peter Villanyi, vice president for global business services at UK medtech company ConvaTec, which opened a new shared services centre in Lisbon in January. “Connectivity and courier services, which we used at length to ship equipment to employees working remotely, worked very well. We also had remote access to tax and legal advisory, banking services, while construction works at our new office didn’t stop either.”

Consolidation over last decade

Higher degrees of systematic resilience were embedded in Portugal’s economy and society during the years of fiscal consolidation, reforms and economic recovery that followed the 2010-2014 crisis.

“Portugal entered the Covid-19 crisis in a fairly good position,” Michele Napolitano, head of Western European sovereigns at rating agency Fitch, tells fDi.

“Public debt was coming down fast and the fiscal response has been relatively prudent, probably also due to the fact that the impact of the pandemic has been less severe than countries like Spain and Italy. Looking forward, we expect the country to close the year with a fiscal deficit of 6.6% of GDP, which is quite different to the 9.5% we expect in Italy, and the 9.6% of Spain – with the caveat that there is a lot of uncertainty and our forecasts might change in the future.”

Portugal macroeconomic trajectory, and resulting resilience, mirrors the changes that happened at a more granular level.

“We experienced a big change in habits and mentality,” says Marcos Drummond, sales director at Lisbon-based property developer VIC Properties. “Particularly in 2011-2012, it was hard, people experienced struggle within their households, it made everyone more disciplined and stoic and budget conscious, even on a personal level.

“[During the Covid-19 crisis] the civil society and the private sector led the process, people started staying at home even before the government took action. And when the government declared a national emergency, they deemed it important that production didn’t stop.”

Institutional strength and effectiveness has also been upgraded, as highlighted by Fitch’s Napolitano.

“Governance effectiveness and policymaking has been pretty positive and reflected in better management of public finance. [...] This improvement in policy making and governance could have helped the management of the pandemic.”

Testament to this upgrade is the country’s fiscal performance. Last year, Portugal struck its first fiscal surplus since the return to democracy in 1975.

International indicators have captured these improvements, with the country’s institutional strength climbing ten positions between 2015 and 2020 in the Global Competitiveness Report by the World Economic Forum.

Portugal is now seeking to play to its recent strengths to build momentum from its resilience.

“We are tightening the belt now, but the mentality is more conducive to a good recovery than it was 10 years ago,” Mr Drummond says. “There seems to be a consensus that there is less volatility in investing in Portugal given what has happened in countries like Spain or Italy. The country it’s well positioned to be a competitive investment destination if there is no second wave of Covid-19 infections. And even if there is a second wave, we will likely react quickly again.”

Much of its future economic recovery will depend on the tourism industry. For a country like Portugal, turning resilience into recovery inevitably means also saving the summer season. Should it pull that off, the country should be able to continue the recovery momentum that built up over the last five years and carry it into the new decade.