Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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 6.2% of GDP in 2022. The year was characterized by a good start thanks to a strong rebound in the tourism sector and a positive balance in the export of services; although growth was hampered in the second half due to supply-chain disruptions, elevated energy prices and rising interest rates. The implementation of the European Recovery and Resilience Plan is expected to support the economy over the forecast horizon, but there are risks that implementation delays continue. For 2023, the IMF expects growth to be sluggish (0.7%): elevated energy bills will constrain private demand, whereas the weaker performance of Portugal’s main trading partners should contribute to a slowdown in trade. Only in 2024, when the global political and economic condition is expected to normalize, GDP growth will resume at a faster pace (2.4% - IMF).

The Portuguese government had managed to gradually reduce its budget deficit in recent years, reaching positive territory. This trend was reversed by the impact of COVID-19 first, and then by the energy prices shock that was exacerbated by the Russian invasion of Ukraine. The energy-related measures taken by the Portuguese government – including income support and reduced indirect taxes for both households and firms - were worth close to 2.1% of GDP in 2022, and contributed to a budget deficit of around 0.7% of GDP. On the other hand, public revenues benefited from strong economic growth and high prices. Despite the fact that the positive performance of government revenue is expected to continue over the forecast horizon, the IMF sees the budget deficit at 1% of GDP this year and in 2024. Driven by a favourable nominal growth-interest rate differential, the public debt-to-GDP ratio decreased to 114.7% in 2022 (from 127.4% one year earlier) and should follow a downward trend in 2023 (111.2%) and 2024 (106.7%). After stagnating for several years, inflation spiked to 7.9% last year, propelled by high energy prices, which triggered pass-through effects to other goods and services, and a severe drought that contributed to one of the highest hikes in unprocessed food prices among the eurozone. The IMF forecasts inflation to gradually ease to 4.7% this year and 2.6% in 2024 amid a tighter European monetary policy and the normalization of energy and food costs.

The unemployment rate decreased to 6.1% in 2022 (down from 6.6% one year earlier). Although wage growth strengthened, it was not enough to protect households’ purchasing power. According to the IMF, unemployment should increase marginally over the forecast period, up to around 6.5%. Overall, Portuguese GDP per capita (PPP) is estimated at USD 42,067 in 2022 (IMF), still 22% below the EU’s average. According to the latest figures from the national statistical office INE, 18.4% of the population is at-risk-of-poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 6,653.

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