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- GDP (PPP):
- $289.8 billion
- 1.5% growth
- -0.9% 5-year compound annual growth
- $27,835 per capita
- Inflation (CPI):
- FDI Inflow:
Portugal continues to face challenges that require urgent economic policy adjustment. Previous reforms, which had helped to modify and diversify the economy’s productive base, have lost their momentum. Despite sound institutional settings such as an efficient business framework and an independent judicial system, the indebted and inefficient public sector has worn away the dynamism of the private sector and reduced the economy’s overall competitiveness.
Reform priorities include reducing budget deficits that have elevated the level of public debt to more than 100 percent of GDP and enhancing the flexibility of the labor market. However, the pace of reform has slowed. The banking system remains weak.
The governing center-right coalition won the most seats in the October 2015 parliamentary elections but lost its majority. Shortly thereafter, Socialist former Lisbon Mayor António Costa joined leftist parties in the parliament to topple the government. In November 2015, Costa was appointed prime minister. The anti-austerity government has slowed economic reforms, causing friction with the European Union and International Monetary Fund. Adherence to strict budgetary discipline had allowed Portugal to move beyond the worst of its economic crisis, but growth has slowed, and Portugal failed to meet the EU-mandated deficit reduction target. Unemployment is high, especially among younger Portuguese, many of whom have moved abroad for work.
Registration of property is fairly easy and can be done quickly online. According to the World Bank’s 2015 Doing Business report, registration is faster and simpler than in most other OECD countries. The constitution provides for an independent judiciary, but staff shortages and inefficiency have contributed to a considerable case backlog. Portugal continued to struggle with corruption scandals during the past year.
The top personal income tax rate is 48 percent, and the top corporate tax rate is 21 percent. Other taxes include a value-added tax. The overall tax burden equals 34.4 percent of total domestic income. Government spending has amounted to 50 percent of total output (GDP) over the past three years, and budget deficits have averaged 5.5 percent of GDP. Public debt is equivalent to 128.8 percent of GDP.
The overall regulatory framework is efficient. Rules regarding the formation and operation of private enterprises are relatively straightforward. Labor regulations on dismissals and the use of temporary contracts remain burdensome and costly. The continuing inefficient operation of remaining state-owned enterprises requires ongoing subsidization. A multi-year bailout of the banking system has cost the government billions.
Trade is important to Portugal’s economy; the value of exports and imports taken together equals 80 percent of GDP. The average applied tariff rate is 1.5 percent. In general, the government does not screen or discriminate against foreign investment. Despite some progress toward stability, the financial system continues to face substantial risks. The banking sector remains weak, and the share of nonperforming loans is rising.