Saturday, April 13, 2024



Portugal Flag

GDP: USD251.9bn (World ranking 50)
Population: 10.4mn (World ranking 90)
Form of state: Parliamentary Democracy
Head of government: António Costa (PM)
Next elections: 2024, Legislative


  • Improving competitiveness thanks to deep structural reforms (banking sector, pensions, labor market)
  • Modern infrastructure network
  • Large companies with international presence
  • Good performance in some industrial and innovative sectors
  • Buoyant tourism sector • Efficient system for R&D, relatively high-skilled labor • Fiscal consolidation reforms


  • Still high public debt (among the highest in the world) despite fiscal consolidation efforts
  • High private sector debt • Still weak banking system hampering the financing of the economy
  • Number of insolvencies still 30% higher than in 2007
  • Political turbulence • Complex legal system and poor rail and technological infrastructure

Economic overview

Overall good macroeconomic situation despite the many headwinds

In recent years, Portugal has distinguished itself with an improvement in economic growth, after holding a weak position in the region. While annual growth in Portugal averaged +0.9% from 2010 to 2019 (Eurozone: +1.6%) and while it suffered from a stronger hit than the region in 2020, growth slightly tailed the Eurozone’s average of +5.5% in 2021 and was double the regional average in 2022, at +6.7% – the second highest growth rate in the region after Ireland. In Q1 2023, Portugal registered a growth of +1.47% q/q, followed by a +0.04% growth in Q2, showing the volatility of its economic situation. While growth will be constrained by the same challenges as the rest of the world – high inflation and tight monetary policy, the Portuguese economy will still benefit from, among other things, a strong tourism sector (17% of GDP in 2019), a generous fiscal support from the EU and an easing in supply-chain restrictions. In the longer term, Portuguese growth should converge towards European growth, at around 2% by 2027.

Since 2022, annual inflation in Portugal has been on average 15% lower than in the rest of the Eurozone. Inflation rose sharply in 2022, but sank more rapidly in 2023 than in the rest of the region, with a y/y average of 8.4% in Q1 2023 – compared with 9% in the Eurozone. Core inflation rose later and less aggressively, but is more persistent, with y/y core inflation exceeding headline inflation for the first time in Q2 2023, at 5.7%. Inflationary pressures are prompted by the strong growth in nominal wages, particularly after the agreement reached in 2022 to raise private sector worker’s wages by 5.1% in 2023 and by a compounded rate of 20% by 2026. Inflation should however be tamed by then: after 5.3% in 2023, we predict it to decrease from 3.4% in 2024 to the ECB’s target rate of 2.0% in 2026.

Making its way to fiscal and financial stability

Portugal has been able to reduce public debt from 134.9% of GDP in 2020 to 112.4% of GDP in 2022, thanks to a strong nominal GDP growth and fiscal consolidation reforms. This should lead to a balanced budget by 2025, with an exceeding primary balance from 2022 on. Public debt should continue to decrease – to 97% of GDP in 2027 –, as fiscal deficit reduces. Along with the EUR14bn granted to Portugal within the EU Recovery and Resilience Facility, this should give Portugal room to increase public investments, in particular regarding state pensions, public-sector pay, health infrastructure and education. However, a likely change of government in 2024 creates uncertainty about the continuity of fiscal consolidation in the medium term.

Portugal’s external position is mixed: although it enjoys a large – and growing – services surplus, thanks to tourism – which accounts for 17% of GDP – the trade balance is consistently negative. The current-account, in deficit until 2022, should resorb in 2023 and improve significantly to +1.1% of GDP by 2027. Portugal’s dependency on tourism is a strength, but at the same time a weakness, considering the volatility of touristic activities. With almost one in five Portuguese living abroad, Portugal benefits from a nonnegligible inflow of remittances from workers located in particular in other European countries. Since 2010, remittances represent on average 1.68% of GDP, with notably an increase in the early 2010s and a slight decrease since the mid-2010s.

Unexpected political turbulence brings uncertainty ahead

The Portuguese business environment appears to be good overall, but has some major shortcomings impeding its ranking as a favorable business environment. In particular, it suffers from a complex tax system, poor rail infrastructure and a low technological readiness. In the 2022 Heritage Foundation’s Index of Economic Freedom survey, Portugal ranked 31st in the world and 21st in the region. It scored very well in property rights, judicial effectiveness and monetary freedom, but lagged far behind on terms of labor freedom and government spending. The World Bank’s 2022 Worldwide Governance Indicators survey ranked it 56th worldwide for regulatory quality, 32nd for rule of law – improving compared to 2021 – and 47th for control of corruption. As to the environmental sustainability of Portugal, our proprietary indicator shows strengths in climate change resistance and energy use per GDP, but weaker performances in renewable electricity output and the recycling rate – ranking Portugal as the 24th most sustainable country.

António Costa, Portugal’s prime minister and leader of the Center-left Socialist Party (PS), resigned on 07 November, after several government officials were made formal suspects of an investigation into possible crimes of corruption related to mining and energy concessions. President Marcelo Rebelo de Sousa, called for a snap election for March 2024. Costa’s Socialist Party has consistently confounded fears of economic mismanagement since taking office in late 2015, by exercising strong fiscal discipline whilst overseeing robust economic growth. Indeed, the budget balance swung from a deficit of 7.4% of GDP in 2014 to a surplus of 0.8% in 2023, while total government debt fell from 132% of GDP to 112%.

In the near term, the political events should not have much impact on fiscal policy because the draft 2024 budget – which was first approved by parliament just a week before Costa’s resignation – looks set to be implemented as originally planned. However, there is a possibility that the Center-right Social Democratic Party (PSD), which is the Socialists’ main rival and which oversaw stagnation during the European debt crisis, could jeopardize the economic gains, especially given that it would probably need to form a coalition with the farright populist Chega group to secure a majority.

CEOWORLD magazine - Insights - Portugal