Economic Overview

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 6.7% of GDP in 2022. After a strong start to the year, Portugal’s economic growth slowed down to 2.3% in 2023, still well above the eurozone average. Within the realm of domestic demand, both private consumption and investment contracted, influenced by rising interest rates and subdued confidence among consumers and businesses. The surge in interest rates has a pronounced impact on Portuguese households, given that nearly 90% of their mortgage portfolio, constituting more than three-quarters of their overall debt, is tied to floating-rate loans. On the external front, the export of goods saw a decline due to weakened demand from trading partners, while the export of services maintained a healthy expansion, primarily fueled by the tourism sector. Amid a weaker macroeconomic outlook among Portugal's main trading partners, the IMF forecasts growth at 1.5% this year, with an acceleration in 2025 (2.2%).

The Portuguese government 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 (-1.7% of GDP in 2022). In 2023, government revenue increased thanks to a robust labour market, wage increases and the still high inflation, with the overall deficit estimated at 0.7% of GDP by the IMF (although in contrast with the EU Commission estimates, which pointed to a 0.8% surplus). The general government balance is projected to narrow to 0.3% of GDP in 2024 (IMF). Government revenue is expected to decelerate, influenced in part by fiscal policy adjustments in direct taxes, as well as a moderation in inflation. Concurrently, government expenditure is poised to increase, driven by sustained upward pressures on current spending, particularly in areas such as the public wage bill and social transfers. The general government debt-to-GDP ratio remained on a sharp downward trend in 2023 (108.4%, from 113.9% one year earlier), driven by a favourable growth-interest rate differential and primary balance effect. The IMF projects a further decline over the forecast horizon, to around 99.9% by 2025. Consumer price inflation has eased during the year, averaging 5.3%, with the easing trend being primarily linked to energy prices, whereas underlying inflation, which excludes energy and food components, persisted in its upward trajectory. The rate should gradually return towards the ECB’s target by 2025 (2.4%).

The unemployment rate increased to 6.6% in 2023 (up from 6.1% one year earlier) and is projected to flatten over the forecast horizon due to the subdued near-term growth outlook. Overall, Portuguese GDP per capita (PPP) is estimated at USD 45,227 in 2023 (IMF), still 20.6% below the EU’s average. According to the latest figures from the National Statistical Office INE, 17% of the population is at risk of poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 7,095.

Foreign Trade

Portugal's economy is open to foreign trade, which represents 102% 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 2022, the country mainly exported petroleum oils (6.9%), vehicles (5.1%), parts of vehicles (3.9%), paper and footware (2.2% each); whereas imports were led by petroleum oils (6.7%), petroleum gas (4.4%), motor cars (4.3%) and their parts (3% - data Comtrade). Forest products have been among the country’s main exports, accounting in the current millennium for 10% of the total exports (official governmental data).

Data from Comtrade shows that in 2022 the main trading partners were Spain (26.2% of total exports), France (12.3%), Germany (10.8%) and the U.S. (6.5%). In the same year, Portugal’s main suppliers were Spain (31.9%), Germany (1.%), France (6.1%), China (5.1%), and the Netherlands (5%). The main extra-EU supplier of goods to Portugal continued to be China.

The country has a structural trade balance deficit. In 2022, Portugal exported goods worth USD 82.2 billion (+9.3% year-on-year), with imports increasing at a faster pace (+16.9%, at USD 114.8 billion). However, Portugal is a net service exporter (USD 46.5 billion in exports against USD 23.8 billion in imports, +44.3% and +18.2%, respectively - data by WTO). The country’s overall balance of trade was negative by 2.4% (was 2.8% one year earlier – World Bank). In the accumulated period January to August 2023, Portuguese exports of goods and services increased by 7% compared to the same period in 2022, reaching EUR 85 billion. Meanwhile, imports totalled EUR 81.8 billion (-0.3% - data Bank of Portugal).

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) in Portugal, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.