Portugal: Economic and Political Overview
After achieving several years of sustained growth, economic output in Portugal fell sharply following the outbreak of the COVID-19 pandemic. Nevertheless, the country recovered quickly, growing by 6.7% of GDP in 2022 and 2.3% the following year. According to official government estimates, economic activity grew by 1.9 % in 2024, driven by private consumption and a strong rise in employee remuneration. As exports and imports increased at similar rates, services, especially tourism, remained key growth drivers despite some slowdown, while manufacturing struggled with weak external demand, and construction remained largely stable. GDP growth is projected to hover around 2.3 % in 2025 and 2.0 % in 2026 (IMF), driven by domestic demand. Private consumption will benefit from real wage growth, while the accelerated implementation of the Recovery and Resilience Plan is expected to boost investment. Lower interest rates should further support consumption and investment.
Portugal's budget surplus dropped by 95% in 2024 after Prime Minister Luís Montenegro's government cut taxes and increased wages and pensions to stimulate the economy. Spending grew by 9.2%, outpacing a 2.5% rise in revenue, leaving a surplus of EUR 354 million (USD 369 million), down from EUR 7.6 billion in 2023, according to preliminary finance ministry data. Portugal's fiscal stance is expected to remain expansionary. The general government surplus is projected at around 0.4% of GDP in 2025 and 0.3% in 2026 (EU Commission). In 2025, this decline will be driven by tax cuts, adjustments to the youth income tax regime, and higher public wages. Public investment will continue expanding, supported by the RRP, while the net cost of energy-support measures is set to drop to 0.1% of GDP. Portugal's government debt to 94.4% of GDP by end-2024, from 99.1% at end-2023. Driven by high primary surpluses and sustained growth, the debt ratio is expected to decrease to 89.8% this year and 86.2% in 2026 (IMF). According to INE, the average inflation rate (HICP) stood at 2.7% in 2024. The services index stayed well above the headline rate, driven by higher accommodation and catering prices. Energy prices rose in early 2024 due to higher electricity network fees but declined in Q3. Non-energy industrial goods and unprocessed food steadily contributed to slowing inflation. Despite monthly fluctuations, inflation is expected to keep declining, aligning with euro area trends. However, with real wages rising, core inflation (excluding energy and food) is projected to slow at a more gradual pace.
Total employment rose by 1.5 % in 2024, with the number of employees growing an impressive 25 % since 2013 (INE). The working-age population continued to benefit from positive net migration, while the employment rate stayed at a record high. Employment growth is expected to slow further, but the unemployment rate should continue to decline slightly. Despite low overall job vacancy rates, sectors like manufacturing and construction face tight hiring conditions and skill shortages, which are likely to keep wage pressures high. Overall, the unemployment rate was estimated at 6.5% in 2024, from 6.4% one year earlier (IMF). Overall, Portuguese GDP per capita (PPP) was estimated at USD 51,257 in 2024 (IMF), still 20.7% below the EU’s average. According to the latest figures from INE, 16.6% of the population is at risk of poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 7,588.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 287.19 | 303.03 | 319.93 | 333.64 | 346.03 |
| GDP (Constant Prices, Annual % Change) | 2.3 | 1.9 | 2.3 | 2.0 | 1.9 |
| GDP per Capita (USD) | 27,835 | 29,341 | 30,947 | 32,354 | 33,641 |
| General Government Balance (in % of GDP) | 0.5 | -0.4 | -0.3 | -0.1 | 0.0 |
| General Government Gross Debt (in % of GDP) | 99.1 | 94.4 | 89.8 | 86.2 | 82.8 |
| Inflation Rate (%) | 5.3 | 2.5 | 2.1 | 2.0 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 6.6 | 6.5 | 6.4 | 6.3 | 6.2 |
| Current Account (billions USD) | 3.95 | 6.05 | 7.29 | 7.24 | 6.08 |
| Current Account (in % of GDP) | 1.4 | 2.0 | 2.3 | 2.2 | 1.8 |
Source: IMF – World Economic Outlook Database, October 2021
The agricultural sector comprises around 2.1% of Portugal’s GDP and employs 3% of the active population (from 10% in 2013 - World Bank, latest data available). The main crops include cereals (wheat, barley, corn, and rice), potatoes, grapes for wine, olives, and tomatoes. However, crop yields remain well below the EU average due to low agricultural investment, limited mechanization, minimal fertilizer use, and a fragmented land-tenure system. Portugal is the world’s largest producer of cork, accounting for around 50 % of global production. According to the first estimate of the Economic Accounts for Agriculture, the income of agricultural activity, in real terms, per annual work unit, registered a 14.7% year-on-year increase in 2024. Moreover, Portuguese exports of vegetables, fruits, and flowers increased by 13.4 % in the first half of 2024 compared to the same period in 2023.
The industrial sector employs 25% of the workforce and contributes to 18.1% of Portugal’s GDP. The manufacturing industry is modern and dominated by small and medium-sized companies. Its main sectors of activity are metallurgy, machinery, electrical and electronics industries, mechanical engineering, textiles and construction. Biotechnologies and IT are also growing. According to data from the World Bank, the manufacturing sector alone contributes 12% of GDP. Portugal has increased its role in the European automobile sector and has an excellent mould manufacturing industry. According to data from the National Statistics Institute, in 2023, the total sales of products and services in the manufacturing industries decreased by 3.2%, in nominal terms, totalling EUR 115.7 billion. A large part of this variation is explained by price stabilization, as the industrial production price index remained unchanged from 2022.
The services sector comprises 66.8% of GDP and employs around 72% of the active population. Tourism, in particular, plays an important and rapidly increasing role in the Portuguese economy. After suffering following the COVID-19 pandemic, the revenue of the accommodation sector returned to its previous levels already in 2022. In 2024 (preliminary data by INE), tourist accommodations welcomed 31.6 million guests (+5.2 %) and recorded 80.3 million overnight stays (+4.0 %). Non-residents accounted for 70.3 % of stays (56.4 million, +4.8 %), while the domestic market contributed 23.9 million (+2.4 %). The Portuguese banking sector improved its liquidity and solvency in recent years, playing a critical role in supporting the economy’s financing and liquidity needs. It comprises 142 institutions: 62 banks, 77 mutual agricultural credit banks and 3 savings banks, with the five largest banks accounting for 72% of total assets (European Banking Federation). One of the most dynamic sectors is that of wholesale and retail trade, which registered a turnover index increase of 4% in 2024 (data INE).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 2.9 | 25.0 | 72.1 |
| Value Added (in % of GDP) | 2.1 | 18.1 | 66.8 |
| Value Added (Annual % Change) | 4.3 | 0.9 | 3.1 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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