Portugal’s record economic contraction in the second quarter saw exports of goods and services plunge by 40% as the coronavirus eroded revenue from overseas tourists, a breakdown of official GDP data showed.

Data from the National Statistics Institute (INE) confirmed its previous estimate that, between April and June, gross domestic product shrank 16.3% from a year earlier and 13.9% from the preceding quarter. It gave a breakdown of GDP components such as domestic and external demand.

Tourism is classified as an export under Portugal’s GDP calculations because the sector brings in money from overseas. It was the sector worst affected by the pandemic.

The number of foreign tourists visiting Portugal in July was down 83% from a year earlier to around 305,800, while in June the fall was of 96%.

Portugal’s unemployment rate rose to 8.1% in July from 7.3% in June, according to INE.

Exports of goods and services fell by around 40% from a year earlier to 13.3 billion euros in the second quarter of 2020, the data showed. Exports of just services, which are predominantly tourism-related, plunged 56% to around 3 billion euros.

Private consumption dropped by around 14% to 28 billion euros in the second quarter from a year earlier and investment fell nearly 11% to around 9 billion euros, together accounting for most of the steep GDP contraction.

“It was a brutal stop that the Portuguese economy had and we are still only seeing the tip of the iceberg,” President Marcelo Rebelo de Sousa told reporters after the data was released.

Though tourism activity picked up in July from the previous month, according to a separate INE release, the coronavirus outbreak still devastated the industry as travel restrictions kept visitors from Britain - Portugal’s largest market - away until late August.

“We have to get the country out of the economic recession and fight unemployment,” Prime Minister Antonio Costa said. “We are going to respond to this crisis with the same determination we had to overcome the previous one” in 2010-14, he said.

Meanwhile, Portugal’s Novo Banco, which emerged from the ruins of the collapsed Banco Espirito Santo (BES), denied it had sold assets to its main shareholder, US private equity fund Lone Star, after some politicians suggested it had.

The bank, which is 75% owned by Lone Star since October 2017 and 25% by the state-backed Portuguese Resolution Fund, has recently been embroiled in a controversy over the sale of non-performing assets.

Lawmakers from at least three political parties have said Novo Banco could be benefiting its main shareholder Lone Star but the bank’s chief executive Antonio Ramalho said that was not the case.

“Novo Banco has never made any sale of (non-productive) assets to Lone Star,” Ramalho told a news conference. “What is going on are just false controversies.”

Under the terms of the sales contract, Novo Banco is not allowed to sell assets to Lone Star or entities related to it.

In a statement, Lone Star said it and its affiliates have never been part of any type of transaction with related parties for the acquisition of assets, including real estate assets, from the Novo Banco group.

Ramalho’s comments came a day after an audit on Novo Banco’s balance sheet, which was requested by parliament and carried out by Deloitte, revealed 4 billion euros in losses between 2014 and 2018.

The government has sent the audit to be examined by prosecutors.

Ramalho said more than 95% of the losses identified by the audit resulted from assets which originated before BES collapsed in 2014.

“After the resolution and the sale (to Lone Star) there were no major problems found by the audit,” Ramalho said.

The leader of the largest opposition party PSD, Rui Rio, said on Tuesday that it is important to know “what happened to all these losses”.

In the first half of 2020, Novo Banco’s consolidated loss worsened nearly 39% year-on-year to around 555 million euros, mainly due to pricey provisions to tackle the coronavirus pandemic and toxic assets inherited from BES.  Separately, Portugal’s largest utility, EDP, reported a 22% drop in first-half net profit to 315 million euros ($372 million) after the COVID-19 pandemic reduced energy consumption in Iberia and Brazil.

EDP said the drop in power usage in Portugal during the lockdown had also led the company to announce the closure of Sines coal plant in 2021, earlier than planned, “which implied the booking of a one-off cost of 130 million euros”.

Reuters