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Economic and political overview

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

After achieving several years of sustained growth, economic output in Portugal fell sharply following the outbreak of the COVID-19 pandemic. Nevertheless, the country recovered quickly, growing by 6.2% of GDP in 2022. The year was characterized by a good start thanks to a strong rebound in the tourism sector and a positive balance in the export of services; although growth was hampered in the second half due to supply-chain disruptions, elevated energy prices and rising interest rates. The implementation of the European Recovery and Resilience Plan is expected to support the economy over the forecast horizon, but there are risks that implementation delays continue. For 2023, the IMF expects growth to be sluggish (0.7%): elevated energy bills will constrain private demand, whereas the weaker performance of Portugal’s main trading partners should contribute to a slowdown in trade. Only in 2024, when the global political and economic condition is expected to normalize, GDP growth will resume at a faster pace (2.4% - IMF).

The Portuguese government had managed to gradually reduce its budget deficit in recent years, reaching positive territory. This trend was reversed by the impact of COVID-19 first, and then by the energy prices shock that was exacerbated by the Russian invasion of Ukraine. The energy-related measures taken by the Portuguese government – including income support and reduced indirect taxes for both households and firms - were worth close to 2.1% of GDP in 2022, and contributed to a budget deficit of around 0.7% of GDP. On the other hand, public revenues benefited from strong economic growth and high prices. Despite the fact that the positive performance of government revenue is expected to continue over the forecast horizon, the IMF sees the budget deficit at 1% of GDP this year and in 2024. Driven by a favourable nominal growth-interest rate differential, the public debt-to-GDP ratio decreased to 114.7% in 2022 (from 127.4% one year earlier) and should follow a downward trend in 2023 (111.2%) and 2024 (106.7%). After stagnating for several years, inflation spiked to 7.9% last year, propelled by high energy prices, which triggered pass-through effects to other goods and services, and a severe drought that contributed to one of the highest hikes in unprocessed food prices among the eurozone. The IMF forecasts inflation to gradually ease to 4.7% this year and 2.6% in 2024 amid a tighter European monetary policy and the normalization of energy and food costs.

The unemployment rate decreased to 6.1% in 2022 (down from 6.6% one year earlier). Although wage growth strengthened, it was not enough to protect households’ purchasing power. According to the IMF, unemployment should increase marginally over the forecast period, up to around 6.5%. Overall, Portuguese GDP per capita (PPP) is estimated at USD 42,067 in 2022 (IMF), still 22% below the EU’s average. According to the latest figures from the national statistical office INE, 18.4% of the population is at-risk-of-poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 6,653.

 
Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 228.85254.15252.38267.72277.81
GDP (Constant Prices, Annual % Change) -8.35.56.71.01.7
GDP per Capita (USD) 22,22524,69424,52226,01326,993
General Government Balance (in % of GDP) -2.3-1.6-2.8-1.4-1.3
General Government Gross Debt (in % of GDP) 134.9125.4116.0112.4108.6
Inflation Rate (%) -0.10.98.15.73.1
Unemployment Rate (% of the Labour Force) 7.16.66.06.66.5
Current Account (billions USD) -2.38-1.94-3.39-2.06-2.03
Current Account (in % of GDP) -1.0-0.8-1.3-0.8-0.7

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

The agricultural sector comprises around 2.2% of Portugal’s GDP and employs 6% of the active population (from 10% a decade ago - World Bank, latest data available). The main crops produced include cereals, fruits, vegetables and wine (Portugal is the ninth-largest wine exporter in the world). Mining, specifically copper and tin, represents a good part of the country’s GDP, with Portugal being one of the largest marble exporters. Furthermore, the forests of Portugal provide a large part of the world's supply of cork. According to the first estimate of the Economic Accounts for Agriculture, the income of agricultural activity, in real terms, per annual work unit, registered a sharp decline in 2022 (-11.8%). Between January and October 2022, exports of agricultural products increased by 30.5% (National Statistics Institute), with imports increasing at a faster pace (+32.2%).

The industrial sector employs 25% of the workforce and contributes to 19.7% of Portugal’s GDP. The manufacturing industry is modern and dominated by small and medium-sized companies. Its main sectors of activity are metallurgy, machinery, electrical and electronics industries, mechanical engineering, textiles and construction. Biotechnologies and IT are also growing. According to data from the World Bank, the manufacturing sector alone contributes 12% of GDP. Portugal has increased its role in the European automobile sector and has an excellent mould manufacturing industry. According to data by the National Statistics Institute, in 2021, the total sales of products and services in the manufacturing industries increased by 15%, in nominal terms, totalling EUR 96.8 billion, surpassing the pre-COVID level by 2.9%.

The services sector comprises 64.7% of GDP and employs around 70% of the active population. Tourism, in particular, plays an important and rapidly increasing role in the Portuguese economy. After suffering following the COVID-19 pandemic, the revenue of the accommodation sector in the first ten months of 2022 already surpassed that of 2019 (also due to the increase in prices of services provided). The Portuguese banking sector improved its liquidity and solvency in recent years, playing a critical role in supporting the economy’s financing and liquidity needs. It comprises 145 institutions: 61 banks, 81 mutual agricultural credit banks and 3 savings banks, with the five largest banks accounting for 77% of total assets (European Banking Federation).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.5 24.7 69.8
Value Added (in % of GDP) 2.2 19.7 64.7
Value Added (Annual % Change) 5.8 5.6 4.6

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.900.88

Source: World Bank - Latest available data.

 

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Foreign Trade

Portugal's economy is open to foreign trade, which represents 86% of its GDP (World Bank, latest data available). While the country has traditionally exported agricultural products, textiles and clothing, it has begun to export an increasing amount of technological equipment. In 2021, the country mainly exported machinery and mechanical appliances (14.3%) and vehicles and other transport equipment (13.2%). The largest commercial surpluses remained in the transactions of mineral products, cellulose pulp and paper, clothing and footwear. The main product groups of imports were machinery (18.6%), chemical products (12.3%), mineral fuels (11.4%), and vehicle and their parts (10.4% - Statistics Portugal).

Data from Statistics Portugal (INE) shows that in 2021 the main trading partners were Spain (26.7% of total exports), France (13.1%), Germany (11%) and the U.S. (5.6%). Portugal’s main suppliers were Spain (32.8%), Germany (12.4%), France (6.7%), and the Netherlands (5.3%). The main extra-EU supplier of goods to Portugal continued to be China, with imports from this partner increasing by 28.6% (4.7% of total imports). Overall, the European Union accounted for 71.5% of exports and 73.6% of imports.

The country has a structural trade balance deficit. In 2021, Portugal exported goods worth USD 75.1 billion (+22.1% year-on-year), with imports increasing at a faster pace (+25.9%, at USD 97.7 billion). However, Portugal is a net service exporter (USD 32 billion in exports against USD 20.8 billion in imports - data by WTO). The country’s overall balance of trade was negative by 3% (was 2.1% one year earlier – World Bank). In the accumulated period January to October 2022, compared to the same period one year earlier, exports increased by 24.4% (EUR 72.5 billion) and imports rose by 33.4% (EUR 100.4 billion - data INE).

 
Foreign Trade Values 20172018201920202021
Imports of Goods (million USD) 78,76389,06089,53877,60097,713
Exports of Goods (million USD) 62,13068,36167,06361,53175,181
Imports of Services (million USD) 16,35018,75619,81115,60620,807
Exports of Services (million USD) 33,95139,17139,31325,33532,000

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20172018201920202021
Foreign Trade (in % of GDP) 84.486.486.676.286.2
Trade Balance (million USD) -15,102-18,415-18,226-14,236-18,745
Trade Balance (Including Service) (million USD) 3,3512,1681,836-4,388-6,766
Imports of Goods and Services (Annual % Change) 8.15.04.9-11.813.3
Exports of Goods and Services (Annual % Change) 8.44.14.1-18.613.5
Imports of Goods and Services (in % of GDP) 41.743.043.139.244.6
Exports of Goods and Services (in % of GDP) 42.743.443.537.041.6

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20222023 (e)2024 (e)2025 (e)2026 (e)
Volume of exports of goods and services (Annual % change) 16.71.41.82.01.8
Volume of imports of goods and services (Annual % change) 10.83.21.51.51.8

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Portugal is a member of the following international economic organisations: IMF, European Union, ICC, WHO, OECD, Schengen Convention, European Economic Area, Latin American Integration Association (observer), among others. For the full list of economic and other international organisations in which participates Portugal click here. International organisation membership of Portugal is also outlined here.
Free Trade Agreements
The up-to-date list of Free Trade Agreements signed by Portugal can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)		 2021
Spain 26.7%
France 13.1%
Germany 11.0%
United States 5.6%
United Kingdom 5.2%
See More Countries 38.3%
Main Suppliers
(% of Imports)		 2021
Spain 32.8%
Germany 12.4%
France 6.7%
Netherlands 5.3%
Italy 5.1%
See More Countries 37.6%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Marcelo Rebelo de Sousa  (since 9 March 2016) - PSD
Prime Minister: António Luis Santos da Costa (since 24 November 2015) - PS
Next Election Dates
Presidential: January 2026
Legislative: January 2026
Current Political Context
Early elections were called after parliament was dissolved on 3 November 2021 because of the rejection of the budget presented by the minority government led by Prime Minister Antonio Costa of the Socialist Party. New elections were held on 30 January 2022: the Socialist party obtained an outright majority (117 seats out of 230) thus being able to govern without the support of its former allies. The main opposition party remained the centre-right PSD (76 seats), whereas support for the far-left BE, PAN, LIVRE parties and the PCP-PEV alliance remained flat or collapsed. The main breakthrough was achieved by the far-right party Chega, which obtained 12 seats and became the country's third political force.
The year 2022 was characterized by the Russian invasion of Ukraine, which prompted a severe reaction from the EU and a sharp rise in energy prices. The government adopted several packages worth 2.1% of GDP to contain the consequences of such an increase, while also focusing on renewable energies. Moreover, the development of Portugal’s lithium deposits has been another government focus in light of the fact that the country sits on an estimated 10% of overall lithium deposits in Europe, sparking peaceful protests and legal actions from environmental groups.
Main Political Parties

The main political parties in Portugal include:
Executive Power
The President is the Head of State and the commander-in-chief of the army. He or she is elected by universal suffrage for a five year term. After a general election, the leader of the majority party or coalition is usually appointed to be Prime Minister by the President, for a four year term. The Prime Minister is the head of the Government and holds executive power, which includes implementing laws and overseeing the everyday running of the country. The Council of Ministers is appointed by the President on the recommendation of the Prime Minister. There is also a Council of State, which acts as an advisory body to the President.
Legislative Power
Portuguese legislative power is unicameral. The parliament, called the Assembly of the Republic, has 230 seats. The members are elected by universal suffrage for a four year term. The executive branch of government is directly or indirectly dependent on the support of Parliament, often expressed by a vote of confidence. The Prime Minister cannot dissolve the Assembly, but the President can do so and call for an early election. Portuguese citizens enjoy considerable political rights.
 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Portugal, please visit the Portuguese government platform with the official data. Official information on the progress of the epidemic in Portugal is consolidated by the Directorate-General of Health (DGS).
For the international outlook you can consult the latest worldwide data in the daily situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in Portugal and the current sanitary measures in vigour, please consult the national government platform Portugal's Response to COVID-19 including the up-to-date information on the containment measures put in place and public health recommendations. Updates in English are available on the website of the US embassy in Portugal.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the site of the Portuguese Tax and Customs Authority (in Portuguese).
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Portugal on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the information on the economic recovery scheme put in place by the Portuguese government to address the impact of the COVID-19 pandemic on the Portuguese economy, please visit the official government website of the economic response to Covid-19 (in Portuguese). The information on the Portuguese economic emergency plan is available here. Further details in English can be found on KPMG's website.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the European Commission and the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Portuguese government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Portugal in the IMF’s Policy Tracker platform.
Support plan for businesses
For the information on the local business support scheme established by the Portuguese government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the dedicated section on the official platform of the Portuguese government (in Portuguese).
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
Support plan for exporters
To find out about the support plan for exporters put in place by the Portuguese government, please consult the official website of Portugal's response to COVID-19 (in Portuguese).
 

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