ECONOMY
Portugal's membership in the European Union (EU) contributed to stable economic growth, largely through increased trade and an inflow of EU funds for infrastructure improvements. Furthermore, Portugal's 1999 entry into the European Monetary Union (EMU) brought exchange rate stability, lower inflation, and lower interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets. Until 2001, average annual growth rates consistently exceeded those of the EU average. However, a dramatic increase in private sector loans led to a serious external imbalance, with large current and capital account deficits that year.
The Government of Portugal managed to keep the budget deficit under 3% in accordance with the Eurozone's Stability and Growth Pact during 2002-2004. However, in 2005 Portugal acknowledged breaching the target when its budget deficit surged to an all-time high of 6%. Since that time, the Socrates government has worked hard to bring the budget situation under control. In 2006, the government reduced the deficit to 3.9%, mainly through revenue-generating measures (i.e., increased collection enforcement and higher taxes). The 2007 budget further reduced the deficit to 3.0% through spending cuts and structural reforms. Helped in part by a wider EU recovery, the Portuguese economy grew by 1.8% in 2007, up from 1.4% the year before. The Portuguese Government predicts the economy will grow by 2.2% in 2008. Unemployment was 8.0% in 2007.
The service sector, comprised of the public service, retail, tourism, and recreation, is now Portugal's largest employer, having overtaken the traditionally predominant manufacturing and agriculture sectors since the country joined the EU in 1986. EU expansion into Eastern Europe has erased Portugal's historic competitive advantage and relatively low labor costs, particularly in the manufacturing and agriculture sectors. The government is working to change Portugal's economic development model from one based on public consumption and public investment to one focused on exports, private investment, and development of the high-tech sector.
Due to slow economic growth, Portugal has lost ground relative to the rest of the EU since 2002. It is projected that in 2008, Portugal's per capita GDP will stand at 65.6% of the EU-27 average and that it will drop to 19th in purchasing power parity behind Cyprus, Greece, the Czech Republic, Malta, and Estonia.
GDP (2007 est.): €158 billion (approx. $232 billion).
Annual growth rate: (2007 est.) 1.9%.
Per capita GDP (2007 est.): €14,906 (approx. $21,900).
Avg. inflation rate (2007 est.): 2.4%.
Services (gross value added 71.2%): Wholesale and retail trade; hotels and tourism; restaurants; transport, storage and communication; real estate; banking and finance; repair; government, civil, and public sectors.
Industry (gross value added 25.3%): Textiles, clothing, footwear, wood and cork, paper, chemicals, auto-parts manufacturing, base metals, diary products, wine and other foods, porcelain and ceramics; glassware, technology; telecommunications.
Agriculture (gross value added 3.5%): Livestock, crops, fish.
Trade (2006): Exports--€34.5 billion (approx. $50.6 billion): Agricultural products 3.7%; food products 4.2%; oil products 5.5%; chemical products 5.1%; plastics and rubber 5.3%; skins and leather 0.3%; wood and cork 4.2%; wood pulp and paper 4.5%; textile materials 4.7%; clothing 7.2%; footwear 3.7%; minerals and mineral products 5.4%; base metals 8.4%; machinery and tools 19.8%; vehicles and other transport material 13.2%; optical and precision instruments 0.9%; other products 3.9%. Imports--€53.1 billion (approx. $77.9 billion): Agricultural products 8.4%; food products 3.4%; oil products 5.3%; chemical products 9.1%; plastics and rubber 4.6%; skins and leather 0.9%; wood and cork 1.2%; wood pulp and paper 2.4%; textile materials 3.3%; clothing 2.5%; footwear 0.8%; minerals and mineral products 1.7%; base metals 9.6%; machinery and tools 19.9%; vehicles and other transport material 11.7%; optical and precision instruments 2.1%; other products 13.1%. Export partners: Spain (27.4%); Germany (13.1%); France (12.4%); United Kingdom (7.1%); United States (6.1%); others (33.9%). All EU-27 (77.4%). Import partners: Spain (30.5%); Germany (13.8%); France (8.4%); Italy (5.8%); United States (1.5%); others (40%). All EU-27 (75.6%).
U.S. Trade With Portugal (2006): Exports--$1.47 billion: Civilian aircraft 26.2%; semiconductors 12.6%; civilian aircraft engines 6.1%; civilian aircraft parts 4.2%; fish and shellfish 3.9%; logs and lumber 3.7%; soybeans 3.2%; medicinal equipment 2.7%; chemicals-organic 1.7%; telecommunications equipment 1.7%; petroleum products 1.6%; corn 1.5%. Imports--$3.04 billion: Petroleum products 22.7%; computer accessories and parts 13.4%; semiconductors and related devices 11.6%; apparel and household goods 7.4%; passenger cars new and used 3.9%; paper and paper products 2.8%; wine products 2.3%; footwear 1.9%.
Foreign Direct Investment (FDI, 2006): Incoming FDI by industry: Real estate, rentals and services to companies--60.1%; financial activities--17.5%; manufacturing--7.4%; wholesale and retail--5.7%; other--4.4%; construction--3.8%; electricity, gas, water--0.6%; lodging and restaurants--0.3%; transport, warehousing and communication--0.2%. Incoming FDI by country in Euros (total €27.7 billion; approx. $40.6 billion): Germany--5.1 billion; United Kingdom--4.5 billion; France--3.8 billion; Netherlands--3.8 billion; Spain--3.6 billion; Luxembourg--1.3 billion; Switzerland--1.0 billion; Belgium--0.7 billion; United States--0.7 billion; Finland--0.6 billion; other--2.6 billion. Portuguese FDI abroad by country in Euros (total €5.6 billion; approx. $8.2 billion): Netherlands--1.3 billion; Spain--0.9 billion; Brazil--0.5 billion; Poland--0.4 billion; Denmark--0.4 billion; Angola--0.3 billion; Ireland--0.3 billion; Luxembourg--0.2 billion; United States--0.2 billion; France--0.1 billion; other--1.0 billion.
