Portugal – Economic Review
Economic trends
Portugal has enjoyed considerable economic progress since it became a member of the European Community in 1986 (now the EU), largely due to increased international trade and an inflow of EU funds for infrastructure development. Until recently, average annual GDP growth rates consistently exceeded those of the EU average but since 2002 Portugal has started slowing down. The GDP growth rate was -1.1% in 2003, 1.2% in 2004 and slowed down again to 0.4% in 2005. Portugal seems to have started a slow recovery in 2006 with an estimated growth rate of 1.2%. IMF forecasts a growth rate of 1.5% in 2007 and 2% in 2008, largely driven by a recovery in export growth. The current-account deficit widened to 9.2% of GDP in 2005 because of rising oil prices, but is expected to narrow down to 6.6% of GDP by 2008. The unemployment rate is about 7.5% but inflation is under control at around 2.5%.
Main branches of industry
The agricultural sector is less mechanised than most of Western European countries, and hence less productive. Agriculture accounts for about 4% of the GDP. The main crops are cereals, fruits, vegetables and wine. Porto wine exports represent 1.4% of total exports. Portugal has large natural resources. The mining sector (copper, tin) as a whole amounts to 6% of the GDP and Portugal is one of the main marble exporters. Portugal’s forests provide a major portion of the world’s supply of cork. The manufacturing industry is modern and is essentially made up of SMEs – government is now encouraging private participation. Its main activity sectors are metallurgy, mechanical engineering, textile, building construction. In addition, the country has increased its role in Europe’s automotive sector and has a world-class mold-making industry. Services, particularly tourism, are playing an increasingly important role. The service sector contributes more than 70% to GDP.
International trade
Though EU expansion into Eastern Europe has erased Portugal’s historic competitive advantage based on low labour costs, but even today Portugal achieves 80% of its foreign trade with the European Union. The share of foreign trade in GDP is around 70%. Portugal’s top three export partners are: Spain, France and Germany. The commodities mainly exported are vehicles, electronic equipment, machinery, apparel & clothing, and mineral fuels & oils. The top three import partners are: Spain, Germany and France. Portugal mainly imports mineral fuels & oils, vehicles, machinery, electric & electronic equipment, and plastics.
