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- GDP (PPP):
- $280.4 billion
- 0.9% growth
- -0.9% 5-year compound annual growth
- $26,975 per capita
- Inflation (CPI):
- FDI Inflow:
Portugal’s economy has benefited from recent structural reforms. Ongoing efforts have focused on reducing the inefficient and oversized government sector, better managing public finance, and reforming loss-making state-owned enterprises. A return to sovereign-bond markets has enabled Portugal to begin repaying its IMF loan ahead of schedule.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 65.1 (down 0.2 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 64th
- Regional Ranking: 30th in Europe
- Notable Successes: Trade Freedom and Business Freedom
- Concerns: Management of Public Finance and Labor Freedom
- Overall Score Change Since 2012: +2.1
Portugal’s economic recovery remains highly vulnerable to challenges related to ensuring fiscal stability and restoring financial-sector competitiveness. Despite relatively sound economic institutions and transparent regulatory and judicial systems, the indebted public sector is still a drag on overall economic dynamism.
Portugal joined the European Union in 1986 and the eurozone in 2002. A center-right coalition formed a minority government following elections in October 2015. Two weeks later, a left-wing coalition opposed to proposed austerity measures forced the government to resign. In May 2011, Portugal accepted a €78 billion European Union–International Monetary Fund bailout plan that included demands for structural reforms to reduce public debt and increase incentives for private investment. Adherence to strict budgetary discipline has allowed Portugal to move beyond the worst of its economic crisis. The economy is based primarily on services and industrial production. Tax rates are at record highs, and younger Portuguese are moving abroad for work. Overall unemployment is well above pre-crisis levels.
A 2014 European Commission report urged Portugal to establish an anti-corruption strategy to address shortcomings in prosecuting high-level corruption cases, the lack of preventive measures for corruption in party funding and public procurement, and conflicts of interest among local-level politicians. Property rights are well protected, but registration costs are slightly higher than the OECD average at 7.3 percent of a property’s value.
The top personal income tax rate is 48 percent, and the top corporate tax rate is 23 percent. Other taxes include a value-added tax. The overall tax burden equals 33.4 percent of total domestic income. Government spending amounts to 50.1 percent of GDP, and public debt still exceeds the size of the economy. Reducing the deficit and debt levels, both public and private, remains a critical task.
Starting a company takes less than a week, and no minimum capital is required, but completing licensing requirements remains burdensome. A number of revisions in Portugal’s labor regulations, which had been among the most inflexible in the European Union, have been implemented. Although some state-owned enterprises have been privatized, the remaining SOEs are inefficiently run and require ongoing subsidization.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. State-owned enterprises operate in several sectors of the economy. Foreign and domestic investors are allowed equal access to investment opportunities, but the uncertain economic climate is a deterrent. Despite some progress, the financial sector remains under considerable strain.