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 6.1%. 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 2.6% through spending cuts and structural reforms, and the 2008 budget brought the deficit down to 2.2%, the lowest rate in 30 years. The proposed 2009 budget projects the same 2.2%, as additional spending is offset by additional tax revenue. Helped in part by a wider EU recovery, the Portuguese economy grew by 1.9% in 2007, up from 1.4% the year before. A slowing regional economy meant the economy grew by only 0.8% in 2008, short of predictions, and the 2009 budget estimates 0.6% growth in 2009. Unemployment was 7.3% in early 2008.
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 Portugal's 2008 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 (2008 est.): €169 billion (approx. $228 billion).
Annual growth rate (2008 est.): 0.8%.
Per capita GDP (2008 est.): €15,945 (approx. $21,547).
Avg. inflation rate (2008 est.): 2.46%.
Services (gross value added 69.2%): 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 28.3%): 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 2.5%): Livestock, crops, fish.
Trade (2007): Exports--€37.5 billion (approx. $50.6 billion): machinery and tools 19.8%; vehicles and other transport materials 12.8%; base metals 8.8%; clothing 6.9%; plastics and rubber 5.7%; minerals and mineral products 5.7%; chemical products 5.1%; food products 4.6%; textile materials 4.5%; wood pulp and paper 4.5%; oil products 4.4%; wood and cork 4.3%; agricultural products 3.9%; footwear 3.5%; optical and precision instruments 0.9%; skin and leather 0.3%. Imports--€57 billion (approx. $77 billion): machinery and tools 19.8%; minerals and mineral products 14.0%; vehicles and other transport material 12.0%; base metals 9.9%; agricultural products 9.0%; chemical products 8.7%; plastics and rubber 5.0%; food products 3.6%; textile materials 3.1%; clothing 2.8%; wood pulp and paper 2.4%; optical and precision instruments 2.1%; minerals and mineral products 1.6%; wood and cork 1.3%; skins and leather 1.0%; footwear 0.9%. Export partners--Spain (27.47%); Germany (13.2%); France (12.46%); United Kingdom (6.0%); United States (4.9%); others (35.6%). All EU-27 (76.41%). Import partners--Spain (31%); Germany (13.1%); France (8.46%); Italy (5.5%); United States (1.6%); others (40.4%). All EU-27 (75.4%).
U.S. trade with Portugal (2007): Exports--$2.4 billion: electrical machinery, telecommunications 37.2%; aerospace 16.5%; machinery and mechanical appliances, computers 9%; oil seeds and grains 4.9%; all others 32.4%. Imports--$3.1 billion: mineral fuels, oils 25.7%; electrical machinery, telecommunications 14.9%; vehicles and parts 13.2%; cork and articles of cork 6.1%; all others 40.1%.
Foreign direct investment (FDI, 2007): Incoming FDI by industry: manufacturing--29.1%; real estate, rentals and services to companies--25.5%; wholesale and retail--23.8%; financial activities--8.4%; transport, warehousing, and communication--5.2%; construction--2.0%; electricity, gas, water--0.8%; exploration industry--0.7%; agriculture, silviculture, and fisheries--0.2%; other--4.3%. Incoming FDI by country in Euros (total €30 billion; approx. $40.5 billion): Germany--19.9%; United Kingdom--15.5%; Netherlands--14.7%; Spain--13.0%; France--11.2%; Luxembourg--4.3%; Belgium--3.0%; Switzerland--2.9%; United States--2.6%; Ireland--2.1%; other--10.8%. Portuguese FDI abroad by country in Euros (total €12.3 billion; approx. $16.62 billion): Netherlands--37.2%; Spain--12.8%; Brazil--4.6%; United Kingdom--4.6%; Angola--3.6%; United States--3.4%; Turkey--2.3%; Poland--2.2%; Luxembourg--2.0%; Romania--1.4%; other--25.9%.
Exchange rate (October 24, 2008): US$1 = €0.74 EUR
