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Economic and political overview

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 and 2.3% the following year. According to official government estimates, economic activity grew by 1.9 % in 2024, driven by private consumption and a strong rise in employee remuneration. As exports and imports increased at similar rates, services, especially tourism, remained key growth drivers despite some slowdown, while manufacturing struggled with weak external demand, and construction remained largely stable. GDP growth is projected to hover around 2.3 % in 2025 and 2.0 % in 2026 (IMF), driven by domestic demand. Private consumption will benefit from real wage growth, while the accelerated implementation of the Recovery and Resilience Plan is expected to boost investment. Lower interest rates should further support consumption and investment.

Portugal's budget surplus dropped by 95% in 2024 after Prime Minister Luís Montenegro's government cut taxes and increased wages and pensions to stimulate the economy. Spending grew by 9.2%, outpacing a 2.5% rise in revenue, leaving a surplus of EUR 354 million (USD 369 million), down from EUR 7.6 billion in 2023, according to preliminary finance ministry data. Portugal's fiscal stance is expected to remain expansionary. The general government surplus is projected at around 0.4% of GDP in 2025 and 0.3% in 2026 (EU Commission). In 2025, this decline will be driven by tax cuts, adjustments to the youth income tax regime, and higher public wages. Public investment will continue expanding, supported by the RRP, while the net cost of energy-support measures is set to drop to 0.1% of GDP.  Portugal's government debt to 94.4% of GDP by end-2024, from 99.1% at end-2023. Driven by high primary surpluses and sustained growth, the debt ratio is expected to decrease to 89.8% this year and 86.2% in 2026 (IMF). According to INE, the average inflation rate (HICP) stood at 2.7% in 2024. The services index stayed well above the headline rate, driven by higher accommodation and catering prices. Energy prices rose in early 2024 due to higher electricity network fees but declined in Q3. Non-energy industrial goods and unprocessed food steadily contributed to slowing inflation. Despite monthly fluctuations, inflation is expected to keep declining, aligning with euro area trends. However, with real wages rising, core inflation (excluding energy and food) is projected to slow at a more gradual pace.

Total employment rose by 1.5 % in 2024, with the number of employees growing an impressive 25 % since 2013 (INE). The working-age population continued to benefit from positive net migration, while the employment rate stayed at a record high. Employment growth is expected to slow further, but the unemployment rate should continue to decline slightly. Despite low overall job vacancy rates, sectors like manufacturing and construction face tight hiring conditions and skill shortages, which are likely to keep wage pressures high. Overall, the unemployment rate was estimated at 6.5% in 2024, from 6.4% one year earlier (IMF). Overall, Portuguese GDP per capita (PPP) was estimated at USD 51,257 in 2024 (IMF), still 20.7% below the EU’s average. According to the latest figures from INE, 16.6% of the population is at risk of poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 7,588.

 
Main Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 287.19303.03319.93333.64346.03
GDP (Constant Prices, Annual % Change) 2.31.92.32.01.9
GDP per Capita (USD) 27,83529,34130,94732,35433,641
General Government Balance (in % of GDP) 0.5-0.4-0.3-0.10.0
General Government Gross Debt (in % of GDP) 99.194.489.886.282.8
Inflation Rate (%) 5.32.52.12.02.0
Unemployment Rate (% of the Labour Force) 6.66.56.46.36.2
Current Account (billions USD) 3.956.057.297.246.08
Current Account (in % of GDP) 1.42.02.32.21.8

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 2.1% of Portugal’s GDP and employs 3% of the active population (from 10% in 2013 - World Bank, latest data available). The main crops include cereals (wheat, barley, corn, and rice), potatoes, grapes for wine, olives, and tomatoes. However, crop yields remain well below the EU average due to low agricultural investment, limited mechanization, minimal fertilizer use, and a fragmented land-tenure system. Portugal is the world’s largest producer of cork, accounting for around 50 % of global production. 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 14.7% year-on-year increase in 2024. Moreover, Portuguese exports of vegetables, fruits, and flowers increased by 13.4 % in the first half of 2024 compared to the same period in 2023.

The industrial sector employs 25% of the workforce and contributes to 18.1% 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 from the National Statistics Institute, in 2023, the total sales of products and services in the manufacturing industries decreased by 3.2%, in nominal terms, totalling EUR 115.7 billion. A large part of this variation is explained by price stabilization, as the industrial production price index remained unchanged from 2022.

The services sector comprises 66.8% of GDP and employs around 72% 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 returned to its previous levels already in 2022. In 2024 (preliminary data by INE), tourist accommodations welcomed 31.6 million guests (+5.2 %) and recorded 80.3 million overnight stays (+4.0 %). Non-residents accounted for 70.3 % of stays (56.4 million, +4.8 %), while the domestic market contributed 23.9 million (+2.4 %). 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 142 institutions: 62 banks, 77 mutual agricultural credit banks and 3 savings banks, with the five largest banks accounting for 72% of total assets (European Banking Federation). One of the most dynamic sectors is that of wholesale and retail trade, which registered a turnover index increase of 4% in 2024 (data INE).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.9 25.0 72.1
Value Added (in % of GDP) 2.1 18.1 66.8
Value Added (Annual % Change) 4.3 0.9 3.1

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 94% 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 2023, the country mainly exported machinery (15.4%), vehicles (13.1%), base metals (8.4%), agricultural products (7.7%), plastic and rubber (7%), chemicals (6.7%), and mineral fuels (6.6%); with imports being led by the same product categories: machinery (18%) and vehicles (12.8%), followed by mineral fuels (11.6%), chemicals (11.5%), and agricultural products (10.6% - data INE).

In 2023, the main trading partners were Spain (25.8% of total exports), France (13%), Germany (10.8%), the U.S. (6.7%), and the UK (4.7%). In the same year, Portugal’s imports came chiefly from Spain (33.8%), Germany (11.6%), France (7%), and the Netherlands (5.3%). The main extra-EU supplier of goods continued to be China (5% - data Comtrade). Overall, the EU accounted for 70.2% of total exports and 74.5% of imports.

The country has a fluctuating trade balance. In 20232, Portugal exported goods worth USD 83.9 billion (+1.7% year-on-year), with imports decreasing to USD 113.4 billion (-1.4%). However, Portugal is a net service exporter (USD 56 billion in exports against USD 25.6 billion in imports, +20% and +6.7%, respectively - data by WTO). The country’s overall balance of trade was positive by 0.9% of GDP in 2023 (from a deficit of 2.4% one year earlier – World Bank). INE’s preliminary data for 2024 shows exports up 2.5 % and imports up 1.9 % (-1.4 % and -4.0 % in 2023), widening the trade deficit by EUR 78 million to EUR 27,887 million. Excluding fuels and lubricants, exports rose 2.0 % and imports 3.0 % (+0.7 % and +1.7 % in 2023), with the trade deficit reaching EUR 21,909 million, up EUR 1,328 million from 2023.

 
Foreign Trade Values 20192020202120222023
Imports of Goods (million USD) 89,53877,89598,200115,080113,475
Exports of Goods (million USD) 67,06361,49675,22982,46383,901
Imports of Services (million USD) 19,90515,64020,09823,99325,613
Exports of Services (million USD) 39,99925,48932,44546,64956,010

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

Foreign Trade Indicators 20192020202120222023
Foreign Trade (in % of GDP) 86.876.585.9101.493.8
Trade Balance (million USD) -18,226-14,236-18,745-27,739-26,756
Trade Balance (Including Service) (million USD) 1,836-4,388-6,766-5,0833,580
Imports of Goods and Services (Annual % Change) 5.1-11.612.311.31.7
Exports of Goods and Services (Annual % Change) 4.0-18.312.017.23.5
Imports of Goods and Services (in % of GDP) 43.139.344.351.946.4
Exports of Goods and Services (in % of GDP) 43.737.341.549.547.3

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20242025 (e)2026 (e)2027 (e)2028 (e)
Volume of exports of goods and services (Annual % change) 2.83.12.42.01.9
Volume of imports of goods and services (Annual % change) 3.73.33.02.72.3

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)		 2023
Spain 25.8%
France 13.0%
Germany 10.8%
United States 6.7%
United Kingdom 4.7%
See More Countries 38.9%
Main Suppliers
(% of Imports)		 2023
Spain 33.8%
Germany 11.6%
France 7.0%
Netherlands 5.3%
China 5.0%
See More Countries 37.4%

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: Antonio Luis Montenegro (since 2 April 2024) - PSD
Next Election Dates
Presidential: January 2026
Legislative: September 2028
Current Political Context
Following Prime Minister António Costa's resignation due to an investigation into suspected wrongdoing in the awarding of contracts for lithium and hydrogen companies, snap parliamentary elections were conducted on 10 March 2024. The centre-right Democratic Alliance (AD), led by Luís Montenegro, won 80 seats, while the Socialist Party (PS), which had lost the absolute majority it had obtained in the 2022 elections, was reduced to 78 MPs. No party was able to secure an absolute majority of seats. The right-wing populist Chega party also became the third-largest party in parliament after the election, more than quadrupling its previous number of MPs to 50. On 2 April 2024, Prime Minister Luís Montenegro took office as head of Portugal's XXIV Constitutional Government, which is a centre-right alliance between the Social Democratic Party (PSD) and the CDS-People's Party (CDS-PP).
The PS, under the leadership of Marta Temido, barely defeated the AD in the 2024 elections for the European Parliament, winning 32.1% of the vote and 8 seats—a net loss of one seat from the previous election. With 31.1% of the vote, the AD kept its 7 seats. With two members apiece, Chega and the Liberal Initiative (IL) became the first parties to enter the European Parliament. Voter turnout increased to 36.6%, the highest in 20 years.
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, although he/she has a primarily ceremonial and supervisory role. 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. 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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