17 de March, 2022
Portugal is trending and this is nothing new. Its cities are full of tourists, attracted by the good weather and excellent cuisine. Not to mention the prices that are more affordable than those of other European destinations. This small nation of just over 10 million people has also become an example of how to successfully overcome the economic crisis that began in 2008 and, more recently, the coronavirus pandemic.
According to the American magazine Foreign Policy, Portugal is an example of how to balance cultural traditions and political values with the demands of larger Eurozone economies such as Germany, France and Italy. The publication praises the country for having managed to combine social cohesion with economic growth and quality of life.
Portugal can also be seen as an example of economic diplomacy. This is because, despite being a small economy, it still has a large international projection. Historically, the country has always been turned towards the outside world. Before, represented by the maritime economy. Now, it is also linked to new technologies and the renewable energy agenda.
Following the global economic crisis of 2008, Portugal plunged into a severe depression. In 2011, on the brink of bankruptcy, the Portuguese government asked the European Union and the International Monetary Fund (IMF) for help. A disbursement of €78 billion was authorised, on the condition that the country implemented austerity measures.
The period was characterised by a significant cut in public spending. This impacted on civil servants’ salaries and pensions. Taxes were increased and unemployment reached a record high of 17.7% in 2013.
In 2014, Portugal freed itself from international creditors. In 2015, the new centre-left government began to reverse the austerity measures, but without neglecting fiscal responsibility. The government started to spend a little more, for example, on salaries. There was more incentive for consumers and more public investment in infrastructure. The measure had a multiplier effect on the economy. The anti-austerity policy paid off. Already in 2017, Portuguese GDP grew by 2.7%, the country’s highest rate since the beginning of the new millennium. In addition, the unemployment rate fell to pre-crisis levels.
The savings rate increased dramatically in 2011, 2012 and 2013, with a drop in imports and an increase in exports. This increase was due to two factors. On the one hand, the technological advance of Portuguese industry in the last 20 years, which began to produce and export products with a high level of quality, especially in the textile sector.
On the other hand, the reduction in taxes in the period 2011-2012 had an impact on prices, increasing the productivity and competitiveness of Portuguese manufacturers.
From January to December 2021, exports of goods reached a record value of 63 billion euros: an increase of 18% compared to 2020. This is what the National Statistics Institute, INE, reveals.
Year after year Portugal has broken the record of visitors to the country. Before the pandemic, tourism accounted for almost 15% of GDP and the sector was responsible for 10% of employment.
Another programme that helped boost the economy is the so-called Golden Visa, through which foreigners who made a qualified investment in the country obtained a residence visa. The scheme was introduced in 2012 and continued under socialist governments.
Not only the Golden Visa has had an impact on the look of the big cities, by winning over new real estate investors. A series of tax incentives granted by the Portuguese government have also contributed to the rehabilitation of historic areas:
To be entitled to the benefits it is necessary to follow some norms. In addition, renovations in heritage properties may require technical monitoring, as is the case in the Historic Centre of Porto.
The alteration in the tenancy laws also changed the scenario in the country’s large cities. Until 2012, lease contracts were not subject to readjustment. As a result, tenants often remained in the property even after the contract expired, passing on the “right” to rent to their children. With time and inflation, rents became negligible and, as a result, no landlord wanted to invest in the maintenance of the buildings. As of 2012, a new tenancy law came into effect, allowing landlords, among other things, to readjust values and request the return of the property upon expiration of the contract. This change led more landlords to invest in improvements, including in the facades of the buildings. Although the law underwent further changes in 2019, it retained many of the conditions that continue to drive owners to restore their properties.
The Portuguese economy was hit hard by the coronavirus pandemic. GDP plummeted 8.4% in 2020, the worst recession since 1936. Tourism was also heavily affected: foreign visitors fell by 76% in 2021. However, the measures promoted during the years before the pandemic allowed Portugal to better withstand the crisis. The country is one of the best performers in the recovery.
Portugal is not expected to return to its pre-pandemic crisis level until 2022. According to International Monetary Fund (IMF) forecasts Portugal should accelerate growth from 4.9% last year to over 5% this year. This will allow the Portuguese economy to fully recover from the crisis and begin expansion throughout this year.
Portugal has the world’s second highest rate of fully vaccinated population against covid-19 (95%), according to data from Oxford University’s Our World in Data platform. The first place is the United Arab Emirates. Therefore, Portugal has the highest vaccination rate in Europe.
The Portuguese economy still has major challenges. Among them, reforming the labour market. Although the unemployment rate is falling, salaries are still very low compared to other European nations. The minimum wage was €645 until 2021, it has just been raised to €705. However, although the Portuguese have less purchasing power in global markets, they are showing small European countries that, with a skilful mix of political and fiscal measures and a bit of luck, it is possible to lead a good life and still grow the economy.