The five cliffs | opinion

In recent months, banking authorities have repeatedly spoken of the so-called “cliff effect” to determine the risk to the banking system that is associated with the end of the credit default, since many borrowers are very likely to be unable due to economic difficulties are to do so to resume paying the debt service.

Are the semantics of the “cliff effect” concept limited to banking activity only? Unfortunately not. In reality, most countries face this type of risk in several areas and Portugal is no exception.


With most of the resources devoted to fighting the pandemic, the vast majority of health systems around the world have pushed the monitoring and treatment of other diseases into the background. According to the World Health Organization (WHO), during the first phase of the pandemic, 122 of the 163 countries surveyed saw non-communicable disease services disrupted, with every third country specific to the European Region having completely disrupted oncology services.

For example, in Portugal, scheduled primary health care (PHC) consultations decreased by 16% and the number of emergencies decreased by around 25.5%.

Likewise, and as reference studies done in the context of previous interventions (i.e. SARS, MERS, or Ebola), we know that quarantine can produce a range of psychopathological symptoms (i.e., depressed mood, irritability, anxiety, anxiety, anger, insomnia), which in the medium and long term leads to an increase in depressive disorders and post-traumatic stress disorders.


There is no question that the reduction in school activity as a result of the pandemic has resulted in significant losses in student education, and it is expected that these losses will have serious economic consequences, both for the future of this generation of students and for the future for the countries as a whole.

According to a study recently published by the OECD (September 2020), each additional year of education leads on average to an increase in annual income over the lifetime of between 7.5% and 10%.

From a different perspective, and assuming that Portuguese students have lost about a third of an academic year so far, we can assume that if nothing is done, current students will experience an average decline in future income of about 2.5% per year will be recorded. 3% per year, which corresponds to around 69% (around 140 billion euros) in relation to the current GDP, ie more than ten times the value of the European “bazooka” for subsidies for Portugal.

Business material

Despite the improvements in the financial strength of the Portuguese business fabric in recent years, it is certain that the effects of the pandemic will make the continuity of a significant number of companies impossible in some areas of activity. Given a similar impact to the last crisis, when the corporate accident rate reached 16% (2011), it is not unlikely that we will see more than 200,000 companies going bankrupt in 2021.

In addition to the effects that the increase in business accidents will have at the production and employment levels, we can also have a second-order effect, reducing the risk of disrupting the existing consolidated clusters, as well as the impossibility of rising protoclusters (i.e. aerospace, industrial and mobile automation and robotics, etc.).

In reality, the disappearance of some companies in the context of international competition to attract investment could lead to a relocation of production (including tourist services!), Leading to the already traditional difficulties of the Portuguese economy in recognizing and proactively using the Schumpeterian thesis the “destructive creation” (here only the “destructive” component).

labour market

Data on labor market behavior in 2020 are paradoxical. With a historic decline in economic activity of 7.6% (on April 6, 2020 in the article “And after the Covid?”, An estimated 7.5% decline in GDP), the unemployment rate declined in December 2020 by comparison Period of 2019 from 6.7% to 6.5% (INE) and at the minimum level of recent years.

While “nice”, this number is very misleading. Although there are 13.7 thousand fewer unemployed than in December 2019, there are 95.3 thousand more inactive Portuguese (who have not looked for work in the last four weeks or are unavailable for work in the two weeks following the date of the survey ) as well as another 41.7 thousand Portuguese who are employed and underemployed, to which we can add more than 200 thousand in a layoff situation. This leads to a potential unemployment rate of around 670,000 people (and not 331.1 thousand as the statistics say), which increases the “real” unemployment rate to values ​​close to 13%.

Banking system

According to the information available, Portugal is one of the countries most exposed to the risk associated with the end of a mechanism in recent months, with around 22.2% of loans to businesses and individuals in arrears (June 2020) this has made it possible to ease the pressure on companies on the treasury while preventing the growth of claims in the banking system’s loan portfolios.

The situation at company level is particularly worrying: around 32% of bank loans are in arrears (with and without public guarantees) and 12% of loans that are not in arrears had to be “supported” by a public guarantee. .

The cancellation of the default mechanism, which is partly planned for March 2021 and overall for September 2021, in connection with a modest economic recovery could have a devastating effect on the banking system, as estimates by consultant Roland Berger show Billions of euros are growing (between 30% and 40% of loan defaults).


Finally, the current pandemic will have severe and persistent effects on several structuring areas of Portuguese society. The medium and long-term effects on health, education, the labor market, the business fabric and the banking system are identified and cannot be ignored.

The answer to these problems cannot and should not depend solely on the will of a government (whatever it may be).

In this regard, the widespread belief that the recently publicly consulted Restoration and Resilience Plan (PRR) will solve all of the nation’s problems can be fatal to the country’s future.

As in “jerseys don’t win” football, a PRR on this matter, with the best intentions, will not guarantee the collective future of the Portuguese shared in a space of viable and inclusive identity.

The author writes according to the new orthographic convention

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