Portugal Economy

Portugal Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

In 2021, GDP grew by 4.9%, which was the best result since 1990. This happened after the largest ever economic contraction of 8.4% in 2020, which was a result of the adverse effects of the covid-19 pandemic on economic activity. The significant growth was greatly helped by domestic demand, and there was also a recovery in private consumption and investment. Public debt totaled EUR 269.6 billion or 127.5% of GDP at the end of 2021, a decrease of 7.7% compared to 2020. Exports increased by 18.1% and imports by 21.1% ( -10.3% or -14.8% in 2020). The trade balance with goods ended with a deficit of EUR 19.04 billion (-EUR 14.39 billion in 2020).

According to the March forecast of the central Banco de Portugal, the economy should maintain its growth profile in the years 2022-2024 in the context of increased uncertainty associated with the war in Ukraine. Therefore, the GDP growth estimate for 2022 was reduced to 4.9%, in 2023 the economy should grow by 2.9% and in 2024 by 2.0%. In the given period, the country should benefit from a greater inflow of funds from EU funds and from the maintenance of favorable financing conditions. The war in Ukraine is also contributing to the acceleration of inflation growth, which reached 1.3% in 2021. In April 2022, however, prices already jumped by 7.2% year-on-year, which was the most since June 1993. Energy prices, which rose by 26.7%, contributed the most to the increase in inflation. The government expected inflation of 4% in the spring of 2022, which is 3.1% more than it planned when drafting the 2022 state budget.

According to cheeroutdoor.com, services account for 75% of GDP and employ approximately 70% of the population. An important role is played by the tourism industry, whose share in GDP and related fields is approximately 19%. This industry was one of those that suffered the most from the pandemic, with a decline of more than 50%. Agriculture accounts for approximately 3% of GDP and employs 6% of the active population. The main agricultural products are cereals, fruit, vegetables and wine. In the case of cork, Portugal accounts for 50% of its global production and 60% of exports. The country is also among the top 9 wine exporters in the world. The food and agricultural sectors were only slightly affected by the covid-19 pandemic, as the distribution channels of staple foods on the domestic market were protected from restrictive measures. Cattle breeding, production of milk and cheese, cultivation of plants, flowers and small fruits, Mining of minerals (copper, tin) represents a significant part of the GDP, the country is also one of the main exporters of marble. Industry employs 25% of the active population and accounts for 22% of GDP. The manufacturing industry is modern and dominated by small and medium-sized companies. The main industries are metallurgy, engineering, electrical and electronic industry, textile industry and construction. The country has strengthened its role in the automotive industry and excels in mold manufacturing. Biotechnology and information technology are also moving to the fore. Industry has been hit harder by the covid-19 crisis than agricultural production.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 2.2 -8.4 4.9 5.4 2.7
GDP/population (USD/PPP) 37,889.70 34,250.40 37,050.00 40,810.00 43,080.00
Inflation (%) 0.3 -0.1 0.9 1.8 1.6
Unemployment (%) 6.6 7.0 6.8 6.0 6.0
Export of goods (billion USD) 67.1 56.2 78.5 82.7 83.6
Import of goods (billion USD) 89.5 74.7 101 107.4 108.1
Trade Balance (Billion USD) -18.7 -14.0 -19.3 -21.3 -21.0
Industrial production (% change) -2.3 -11.0 6.5 4.3 2.0
Population (millions) 10.3 10.3 10.3 10.3 10.2
Competitiveness 39/63 37/63 36/64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.8
Public debt (% of GDP) 127.5
Current account balance (billion USD) -2.4
Taxes 2022
F.O 1- 48.0%
VAT basic 23%, medium 13% and reduced 6%

In connection with the expected economic recovery after overcoming the covid-19 pandemic, the Portuguese government plans to continue a prudent budget policy and continuously reduce the ratio of public debt to GDP, which rose to 133.6% in 2020, and only managed to reduce it in 2021 to 127.5%. In 2022, the government intends to run a budget deficit of 1.9% and thus continue the consolidation of public finances. In the draft of Portugal’s recovery and resilience plan, which the country submitted to Brussels in April 2021, it is planned to reduce the ratio of public debt to GDP to 117.1% in 2024.

Balance of payments in 2020 (in million EUR, Banco de Portugal)
Current account: -2,403, of which goods -15,033, services 9,465, primary incomes -2,543 and secondary incomes 5,710
Capital account: 3,827
Financial account: 1,937, of which direct investments -7,999, portfolio investments 12,724, financial derivatives 745, other investments -6,337

In 2021, foreign exchange reserves reached EUR 28.338 billion and net foreign debt EUR 170.628 billion. Debt service represented 3.5% of GDP.

Regarding taxes, the autonomous regions have lower VAT rates (Madeira: basic 22%, intermediate 12% and reduced 5%, Azores: basic 18%, intermediate 9% and reduced 4%) as well as corporate income taxes ( Madeira 14.7%, Azores 16.8%).

Banking system

The Portuguese banking sector is more resilient today compared to the period of the financial crisis between 2010 and 2014. There was an increase in the level of efficiency, liquidity, asset quality, profitability and solvency. Conditions for access to credit are very favorable and have converged to the eurozone average since 2019. However, the banking sector continues to face important challenges, including the slowdown of the economy, the continuation of the policy of low interest rates in the longer term, increased competition and possible changes in legislation and regulation. The banking system is subject to a number of restrictions that do not exist elsewhere in Europe. Among other things, this concerns the setting of maximum interest rates for consumer loans, the prohibition of negative interest rates for deposits and the prohibition of commissions for the operation of a unified network of ATMs. In 2019, the industry employed over 46,000 people and the banking network included 4,023 branches, 13,945 ATMs and 149 credit institutions (61 banks, 85 mutual agricultural credit banks and 3 savings banks). The regulatory role is performed by the central Banco de Portugal, which sets the rules that all entities operating in the retail banking markets must comply with.

The biggest banking houses in Portugal

  • Caixa Geral de Depósitos (CGD) is a joint-stock company whose capital is 100% in the hands of the state. However, its activity is fully comparable to that of any other bank. It is the largest bank in Portugal.
  • Millennium BCP – Banco Comercial Português is the largest private financial group in the country and ranks second in terms of market share. It is very active in Poland, where it has a network of 702 branches, which is more than in Portugal alone, where it has 477 branches.
  • Santander Totta is a financial group led by Spain’s Banco Santander, which is the largest banking group in the Eurozone and the fourth largest in the world.
  • Banco BPI leads a multifaceted financial group focused on banking with a complete range of financial products and services for private customers, institutions and companies. The group was acquired by Spain’s La Caixa in 2017, but the bank’s original Portuguese name was retained.
  • By decision of the central bank, Novo Banco is the successor and interim financial institution to the bankrupt Banco Espírito Santo – BES. Its share capital amounts to EUR billion and is fully subscribed by the Resolution Fund, which is created from the deposits of all banking houses in Portugal.

Tax system

The Portuguese tax system is based on a set of state and municipal, direct and indirect taxes. It can be described as relatively clear and stable. There are occasional partial changes to the method of calculating personal income taxes, especially regarding the determination of income bands, the rate of taxation and the amount of the non-taxable base. No significant changes to the tax system are planned for the foreseeable future.

Income taxes
Personal income tax (IRS) is highly progressive and variable depending on the number of dependents, the lowest rate for income up to €7,112 per year is 14.5%, the highest rate for income over €80,882 per year is 48% .
Corporate income tax (IRC) has a standard rate of 21%, with lower rates applied in some cases in the autonomous regions (Madeira and the Azores). A reduced rate of 17% (12.5% ​​for inland) applies to SMEs, but only on the first €25,000 of profit. High profits are subject to a mark-up rate of 3% on profits between EUR and 7.5 million, 5% on profits between EUR 7.5 and 35 million and 9% on profits exceeding EUR 35 million. The municipal surcharge is levied on taxable profit at a rate of up to 1.5% depending on the municipality, resulting in a maximum possible aggregate tax rate of 31.5%.

Property tax (IMI)
The rates of this municipal tax vary between 0.3% and 0.8% of the value of the property, depending on its type and the councils’ decision on the specific rate.

Excise Duty (IEC)
Value Added Tax (IVA) – Continent 23%, 13% and 6%, Madeira 22%, 12% and 5%, Azores 18%, 9% and 4% Other taxes are mineral fuel tax and gas (ISP), tax on tobacco and tobacco products, tax on spirits, tax on motor vehicles.

Social insurance
The employer pays 23.75% and the employee 11.0%, i.e. a total of 34.75% of the income.

Portugal Economy