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- GDP (PPP):
- $246.5 billion
- -3.2% growth
- -1.2% 5-year compound annual growth
- $23,385 per capita
- Inflation (CPI):
- FDI Inflow:
Portugal’s economic freedom score is 63.5, making its economy the 69th freest in the 2014 Index. Its score is 0.4 point higher than last year, reflecting improvements in labor freedom, business freedom, and trade freedom that outweigh declines in the control of public finance and monetary freedom. Portugal is ranked 32nd out of 43 countries in the Europe region, and its overall score is above the world average.
Over the 20-year history of the Index, Portugal’s economic freedom score has been stagnant at best. Significant gains in market openness and regulatory efficiency have been undermined by declines in property rights and the management of public finance and a level of labor freedom that is far below average. Portugal’s economy has been rated “moderately free” throughout the history of the Index. Its 2014 score is its highest in three years.
Short-term legislative reforms have not been implemented effectively. Ongoing efforts have focused on reducing the inefficient and oversized government sector, better managing public finance, and reforming loss-making state-owned enterprises. However, the economy remains burdened by political interference, corruption, a rigid labor market, and uncertainty in the eurozone.
Portugal joined the European Union in 1986 and the eurozone in 2002. By 2011, a sovereign debt crisis threatened to sink the economy. The center-right Social Democrats led by Pedro Passos Coelho defeated Prime Minister Jose Socrates’ Socialist Party in the 2011 general elections. In May 2011, Portugal accepted a €78 billion European Union–International Monetary Fund bailout plan. Despite cuts in state spending, Portugal is still in deep recession, thanks in part to tax increases. The economy is based primarily on services and industrial production. Some state enterprises have been privatized. In the first quarter of 2013, unemployment reached an all-time high of 17.7 percent, and youth unemployment was 42 percent.
Portugal continued to struggle with corruption issues in the past year as more than 30 former government officials faced trial charged with graft, money laundering, and influence peddling in cases dating to 2009. The constitution provides for an independent judiciary, but staff shortages and inefficiency have contributed to a considerable backlog of pending trials.
The top individual income tax rate has risen to 48 percent, and the top corporate tax rate has risen to 26.5 percent, including a surcharge of up to 5 percent levied on companies with over 7.5 million euros in profits. Other taxes include a value-added tax (VAT). The overall tax burden equals 31.3 percent of gross domestic income. Public expenditures amount to 49 percent of the size of the economy. Debt has stabilized at below 130 percent of GDP.
The overall regulatory framework generally supports entrepreneurial activity. However, completing licensing requirements still costs almost four times the level of average annual income. Several revisions in Portugal’s labor regulations, which had been among the least flexible in the European Union, have been implemented recently. In 2013, the government reduced subsidies paid to small-scale producers of power from solar energy by 30 percent.
EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. Foreign investment in some sectors of the economy is screened by the government. Restructuring of the banking sector has progressed over the past year, but the overall financial system remains under considerable strain. Banks have become highly dependent on the European Central Bank for liquidity.