Portugal’s restaurants face long-term pain as the country struggles with Covid surge

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In downtown Lisbon, many cafes and restaurants are closed due to the mandatory confinement.

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“It’s a dramatic situation,” a restaurant owner in Lisbon told CNBC having closed two of his four locations in the wake of the coronavirus pandemic.

The restaurant industry is one of the hardest hit by social restrictions in a country heavily dependent on tourism and where eating out is part of the population’s DNA.

About 43% of restaurants were considering going into administration in August, according to a survey released at the time. Since then, the restrictions have been significantly stepped up and business owners have complained of a lack of clarity regarding their futures.

“The government’s management of the crisis is so complex that we don’t have any visibility about how the upcoming months will look like,” Joao Baptista, who has been in the industry for almost a decade, said.

Portugal managed the first wave of the pandemic relatively well compared to its European neighbors, but the picture has been much bleaker since late last year. Looking at the 14-day case and death notification rate per 100,000 people, Portugal is currently the worst hit country in Europe, according to the European Centre for Disease Prevention and Control.

On Tuesday, there were 2,583 new cases of Covid-19 — an improvement from the 9,083 new infections registered on Wednesday, but still much higher in comparison with its peak during the first wave.

Portugal’s Prime Minister Antonio Costa has said he would have been stricter with regulations over the Christmas period if he knew there would be this surge in the new year. Health specialists have said the relaxation of rules over Christmas and the more infectious variant from the U.K. have contributed to the recent rise in infections.

Clearly the situation is most dire for sectors such as restaurants, hotels, recreation, and tourism in (a) broad sense. I think especially these sectors will take years to recover.

Maartje Wijffelaars

economist at RaboResearch

In addition, there’s a shortage of medical equipment and staff. Germany and Austria have offered help over the past week as a result.

The southern European nation entered a second national lockdown on Jan. 15, but there were several exceptions to the stay at home orders, such as florists being able to remain open.

Days later, the government decided to close schools and, more recently, it limited trips abroad and allowed medical centers to more easily hire workers from other nations.

There is no clear timeframe for when restaurants will be able to reopen. At the moment, some are focusing on takeout food. This is putting Baptista’s plan to open a new restaurant in the coastal town of Cascais in May under a cloud of uncertainty.

‘Second wave is harder to handle’

Bruno Babone, president of the Chamber of Commerce and Industry of Portugal, said the situation that businesses find themselves in is “very worrying.”

The coming months will very much depend on how the pandemic evolves, he said, “but it is a shame that our government has dealt with it with fear and panic.”

Filipe Garcia, a Portuguese economist, also blamed Portugal’s leaders for not better communicating their plans which, he said, had been reflected on the economy.

Portugal’s Secretary of State for Health, Antonio Lacerda Sales, told CNBC via email that “the virus evolved, there are new challenges to face all the time and governments have to adapt their national responses to this puzzling dynamic.”

LISBON, PORTUGAL – A waiter wearing a protective mask shows the menu at one of the restaurants in Rua Augusta during the COVID-19 Coronavirus pandemic on November 23, 2020 in Lisbon, Portugal.

Horacio Villalobos | Getty Images News | Getty Images

Business sentiment data fell in January from the previous month and reversed the positive momentum seen between May and October last year — a period which coincided with a relaxation of Covid measures.

“Companies have adjusted to teleworking, but their financial positions are weaker. This second wave is harder to handle,” Garcia said.

Some businesses have complained about government support taking too long to come through. Baptista told CNBC he has so far only received one payment from the government in December in relation to costs with the first national lockdown, which was introduced in March. The Portuguese Economy Ministry was not immediately available for comment when contacted by CNBC on Monday.

‘Take years to recover’

Gross domestic product figures also point to a contraction of 7.6% for 2020, according to the country’s statistics office. A sharper shock when compared with the entire euro area last year.

“Clearly the situation is most dire for sectors such as restaurants, hotels, recreation, and tourism in (a) broad sense. I think especially these sectors will take years to recover,” Maartje Wijffelaars, an economist at RaboResearch, told CNBC.

She added that even when the economy fully reopens, these businesses will not be able to quickly make up for the losses during the pandemic.

“While people, when vaccinated and with the virus something of the past, are likely to return to hospitality venues, recreational areas and go on a holiday, they are unlikely to catch-up for all missed dinners and vacations at once,” she said.

LISBON, PORTUGAL – A mask-clad passenger rides alone on a Line 28 tram by Praça Luís de Camões.

Horacio Villalobos | Corbis News | Getty Images

The government is hoping that upcoming EU funds will help with an economic recovery — a challenge for a country with high levels of public debt and which exited a financial crisis roughly five years ago.

However, this financial support from the EU is only due later this year and on the pre-condition that Portugal, just like all the other 26 EU members, commits to structural reforms.

In the meantime, the advice from the EU is for countries to keep supporting their economies and to only carefully lift that help when the time is right. In this context, the bloc suspended its fiscal rulebook to allow governments to spend more. 

“While the government with support has been able to prevent massive layoffs and bankruptcies, it seems inevitable some pain will still need to be taken once government support is being build down – which it likely will be at some point – hampering the recovery as well,” she said.

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