The Portuguese economy has undergone profound changes over the past few decades. From the colonialist corporative and protectionist model of the Estado Novo, based on agricultural and industrial production, Portugal progressively began (from the 1970’s onwards) to lift restrictions and open its economy. With the 1974 revolution the country underwent a period of adjustment and continuous modernization of its economic model.
During the 1990s Portugal followed an economic policy determined by the Economic and Monetary Union’s (EMU) convergence criteria. The process of nominal convergence was successfully completed, and the country has been integrated in the Eurozone since its creation in January 1999. This entailed the fulfillment of a set of quantitative criteria aimed at pursuing a rigorous and credible macroeconomic policy.
The structure of the economy has since changed, with a growing dominance of the services sector, similarly to other European partners. In 2018, the primary sector accounted for 2.7% of GVA (comparing to 24% in 1960), and 5.8% of employment; while the secondary sector accounted for 21.9% of GVA and 24.1% of employment. In the same year, the services sector accounted for 75.3% of GVA and 70.1% of employment.
In addition to a higher incidence of the services sector in the economic activity, there has been a significant change in the standard of specialization of the manufacturing industry in Portugal in the past decades: it has modernized, departing from a dependence on traditional industrial activities to a situation in which new, more technological, sectors, have gained weight and a dynamic of growth. In this respect, the automotive and components sector, electronics, energy, pharmaceutics and new information and communication technologies should be highlighted.
The industrial sector, crucial for Europe’s social and economic development in the past, has been losing relevance with the development of the services sector. In Portugal, manufacturing industry went from 18.1% of GDP in 1995, to 13.5% in 2019 - below the 16.5% of the European average in the same year. Thus, industry is now seen as a priority area for the country’s economic recovery and modernization, as part of a green and digital transition, in accordance with the Recovery and Resilience Plan (PRR), approved by the European Commission. This plan, with execution planned until 2026, is based on a significant national industrialization, which takes place in an international context of decarbonization, thus relying on investment in clean hydrogen, in accordance with the European Green Deal, and the Paris Agreement. The national industrialization will thus feature prominently in the plan, taking in consideration, and contributing to the Sustainable Development Goals of the 2020 Agenda, and ensuring a sustainable increase in the quality of life of the population. This need became evident during the pandemic crisis, as a key pillar of a resilient economy, which reduces its dependence on outside forces and exposure to risks of new value-chains disruptions.
In what concerns services, Portugal's geographic position, enjoying the Mediterranean climate moderated by the influence of the Atlantic, as well as its extensive coastal strip, allied to history and culture, support a relevant and growing tourism industry.
Due to the pandemic, and the mobility restrictions, the tourism sector registered a historic decline in 2020. Although its recovery is expected - once the pandemic is overcome and circulation without restrictions returns - the sector is nevertheless highlighted in the PRR, with the goal of modernizing and strengthening the competitiveness of the sector. Indeed, tourism is one of the priority areas for action plans such as the National Strategy for Research and Innovation for Smart Specialization (ENEI) and “Emprego + digital 2025” - a training programme in digital technologies focused on innovation and digital transformation. It also reinforces the reference to the concept of green and blue growth, potential or opportunities linked to ecosystems, hydro systems and the ocean, that is, to "nature-based solutions".
Portugal is among the 50 largest economies in the world, and its growth outlook was positive until 2020. The economic shock resulting from the crisis caused by the SARS-CoV-2 pandemic hampered the country’s economic prospects, by causing a sharp decline in activity. However, today, with the vaccination campaign and supportive public policies, macroeconomic forecasts point to the recovery of the national economy, which should reach pre-pandemic production levels after the 3rd quarter of 2022, according to OECD data.
Sources: AICEP and Banco de Portugal
(Main Economic Indicators updated, from 2016 to 2020)
|Indicator||Unit||2016||2017||2018||2019 Po||2020 Pe|
|Volume Rate of Change||2,0%||3,5%||2,8%||2,5%||-7,6%|
|GDP per Capita||EUR (Millions)||18061,00||19023,00||19952,00||20800,00||19637,00|
|Volume Rate of Change||4,1%||5,3%||4,9%||4,3%||-5,6%|
|Private Consumption||EUR (Millions)||118273,50||122556,25||127737,35||132344,36||125423,43|
|Volume Rate of Change||2,0%||2,6%||2,1%||2,6%||2,6%|
|Public Consumption||EUR (Millions)||17652,07||18264,66||19182,30||20195,23||21151,15|
|Volume Rate of Change||0,8%||0,2%||0,6%||0,7%||0,4%|
|Investment (GFCF)||EUR (Millions)||28893,36||32887,73||35953,44||38839,21||38627,85|
|Volume Rate of Change||3,6%||13,8%||9,3%||8,0%||-0,5%|
|GFCF excluding Construction||EUR (Millions)||14942,324||16625,314||18003,620||18822,468||17211,411|
|Volume Rate of Change||6,5%||11,3%||8,3%||4,5%||-8,6%|
|Gross National Income Per Capita||EUR||17622||18577||19465||20276||19344|
|Activity Rate||% population >15 years||58,4%||58,9%||59,0%||59,1%||58,0%|
|Employment Rate||% active population||51,9%||53,6%||54,9%||55,3%||54,0%|
|Unemployment Rate||% active population||11,1%||8,9%||7,0%||6,5%||6,8%|
|Public Sector Budget Balance||% GDP||-1,9%||-3,0%||-0,3%||0,1%||-5,7%|
|Public Debt||% GDP||131,5%||126,1%||121,5%||116,8%||133,6%|
|Current account balance||EUR (Millions)||2186,1||2537,3||1137,4||820,9||-2377,4|
|HICP-Portugal||Annual Rate of Change||0,6%||1,6%||1,2%||0,3%||-0,1%|
|Labour productivity per person employed (FTE)||Annual Rate of Change||-0,60%||-0,10%||-0,40%||1,10%||3,40%|
|Labour Cost - Wages||Annual Rate of Change||3,60%||6%||6,40%||4,60%||1,10%|
|Labour cost - Per Unit produced (nominal)||Annual Rate of Change||0,80%||2,10%||3,40%||1,80%||9,30%|