Portugal

Investment & 
Operational
Climate

Following an 8.4% contraction in GDP in 2020, Portugal bounced back strongly from the pandemic with the economy accelerating 4.9% in 2021 and 6.7% in 2022, partially due to the EU’s fiscal and monetary stimulus. The important tourism sector was also a big factor. U.S. tourists, for example, jumped to about 1.5 million in 2022, beating the pre-pandemic record of 1.2mm in 2019. As a result, the labor market continues to show remarkable resiliency, with unemployment at 6% in 2022, down from 6.6% in 2021. The Socialist Portuguese government has showed a strong commitment to reducing the fiscal debt and deficit, progressively improving its sovereign credit ratings. The rosy post-pandemic economy was severely impacted by Russia’s aggression against Ukraine, causing a spike in energy and food costs that fed into inflation, running at 7.4% in March 2023. As the ECB raises interest rates and withdraws its loose monetary policy in response, Portuguese households are especially vulnerable, as about 80% of mortgages are variable rate. GDP expansion is expected to slow down to 1.3% in 2023 and labor strife has increased. Longer term, Portugal has also struggled with a chronic emigration of highly qualified workers for higher paying careers in Switzerland, France, the UK, Luxembourg and elsewhere. Combined with low fertility rates, Portugal would face a demographic collapse, without net immigration from Brazil and elsewhere.