Portugal: Macroeconomic Country Outlook
- GlobalData forecasts Portugal’s real GDP to grow by 6% in 2022
- Portugal was ranked 38th out of 152 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- According to GlobalData, the industrial production index of the country declined by an average annual rate of 0.1% during January 2022 to June 2022
Portugal was among the OECD economies, which was strongly hit by pandemic but has been recovering fast since mid-2021. Portugal’s economy rebounded with a growth rate of 4.9% in 2021, backed by the gradual easing of restrictions, a successful vaccination campaign, and strong policy response. As the health situation improved and most of the restrictions were removed, activity in the services sector gained momentum, associated with strong household consumption since Q2 2021. According to MarketLine, real GDP grew by 11.1% on an annual basis in Q1 2022, up from 5.8% in Q4 2021 and -5.3% in Q1 2021. According to the IMF, the volume of exports and imports of goods and services recovered strongly with growth rate of 12.4% and 13%, respectively, in 2021.
Key findings
- Economy expected to recover in 2022: The government has been able to control the spread of COVID-19 since June 2020, leading to a better fiscal position than many other countries. An effective vaccination program and prudent government spending led to a quick rebound in economic activity. The Portugal economy grew by 4.9% in 2021. In Q1 2022, the GDP rose above its pre-pandemic level, propelled by strong domestic demand and a rebound in tourism from the second half of 2021. GlobalData forecasts the real GDP to grow by 6% in 2022, up from 4.9% in 2021. Portugal’s direct impact of Russia and Ukraine war is limited, but activities are likely to be hit by increasing commodity prices.
- Portugal's deteriorating relationship with Russia: Portugal and Russia’s diplomatic relationship started in the 18th century and was strong until the late 20th century. However, Portugal’s association with NATO in 1986 led to friction between the two countries. On March 15, 2022, Portugal decided to impose new EU-wide sanctions on Russian oligarchs, irrespective of citizenship status, following Russia’s invasion of Ukraine. As a result of the war, Portugal will have to bear the huge cost of moving away from Russian natural gas supplies. In June 2022, Portugal asked the EU for assistance worth EUR160 million ($192.8 million) as it struggled with the initial impact of war and soaring prices.
- Portugal ranked 39th out of 190 countries in the World Bank’s doing business report in 2020: According to the World Bank, Ease of Doing Business (2020), Portugal scored 76.5 out of 100, lower than France (76.8) and Spain (77.9). It takes six procedures to start a business, higher than the OECD high income average of 4.9 procedures. The number of procedures to deal with construction permits is 14, which is also higher than the OECD high income countries average of 12.7. The country ranked first in terms of trading across borders and 15th in terms of resolving insolvency.
- 5G network: In Portugal, NOS had the fastest 5G mobile network in Q1–Q2 2022 with median download speed of 362.84 Mbps and upload speed of 34.12 Mbps, according to Speedtest. NOS indicated that the operator covered 75% of the total population of Portugal, as of March 2022 and expects to reach 100% threshold by end of 2022. MEO, a mobile and fixed telecommunications service provider in Portugal, activated 5G network in the country on January 1, 2022, and covered half of the population by March 2022.
- Incentives for R&D expenditures: The government’s incentives towards R&D are higher than most of the other OECD countries. Portugal also has one of the highest tax subsidy rates (calculated as 1-B index and defined as the current value before tax income needed to cover the initial cost of R&D investment and pay corporate income tax) among the OECD nations, which will encourage businesses to invest in R&D in the country. In 2021, the marginal tax subsidy rate for profit-making (lossmaking) SMEs in Portugal was estimated at 0.39 (0.31), well above the OECD median of 0.20 (0.18). The tax subsidy rate for large profit-making enterprises was 0.39 and (0.31) for loss-making enterprises, substantially larger than the OECD median of 0.17 (0.15).
- Portugal’s progress in renewable energy expected to pick up: According to the Portuguese Renewable Energy Association (APREN), a total of 3,346 GWh of renewable was generated in July 2022, a decline of 8.8%, compared to same period of last year. Fall in the hydro index, which led to a steep decline in hydro production, is the main cause of decrease in July 2022. However, during January 1 to July 31, 2022, Portugal was the fourth country with highest renewable incorporation in electricity generation. The country aims to achieve 80% of the country’s electricity from renewable sources by 2030. It also aims to eliminate greenhouse gas emissions from electricity generation by 2050.
Key fundamentals
Sectoral outlook
- Tourism industry expected to grow in 2022: According to the National Statistics Institute, the number of international visitors visiting Portugal in May 2022 increased over sixfold over the same month last year but fell around 9% short of pre-coronavirus pandemic levels. The hotel industry welcomed 2.5 million visitors in May 2022, with total hotel income increasing 3.6 times to $456.7 million. The local market generated 1.8 million overnight stays, while the international market contributed 4.7 million. According to GlobalData, the total number of international arrivals in the country increased from 3.9 million in 2020 to 4.7 million in 2021 and is forecast to reach 12.2 million in 2022 and 15.1 million in 2023.
- Uncertain outlook for vehicle manufacturing in Portugal: According to the report by the International Labour Organization, Portugal’s automotive industry as a result of comparative wage devaluation and increasingly flexible work arrangements, the industry has had difficulty attracting and retaining skilled workers in recent years. Furthermore, traditional instruments for attracting and retaining foreign investment appear to have lost much of their luster. These developments suggest that policies aimed at industrial upgrading, such as industrial policy, incentives for R&D and innovation centres (e.g., firm cluster research centres), and collaboration with technology and EV-related companies, would benefit the Portuguese automotive industry.
- Portugal’s textile and clothing sector to recover partially: Portugal released its Recovery and Resilience Plan (RRP) for public comment in February 2021, which includes $152 million to promote incorporation of bio-based materials in the textile and clothing, footwear, and resins sectors, with funds supporting 30 research, development, and innovation projects and 40 industrial property registration applications. The goal is to create new textile production processes. The plan envisions 55 members per year joining the resin tappers programme and providing financial support for improvement of 8,000 hectares of maritime pine woods with resin tapping potential.
GlobalData Country Risk Index (GCRI) – Q2 2022
Portugal was ranked 38th out of 152 nations in the GCRI Q2 2022. The country’s score is in the low-risk score (30-40). Portugal’s overall risk score is lower than the world average (44) in the GCRI Q2 2022. The country secured low risk on macroeconomic (31.5), and demographic and social structure (35.2) indicators as compared to the World average in Q2 2022, and it secured low risk on environment (15.3) as compared to the West Europe score (19.3). Portugal’s overall score decreased from 36.3 in Q1 2022 to 32.6 in the Q2 2022 GCRI update.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources, and also proprietary data from GlobalData. West European countries in this publication include Austria, Belgium, Denmark, Finland, France, The U.K., Greece, Italy, the Netherlands, Norway, Portugal, Ireland, Spain, Sweden, the UK, Luxembourg, Iceland, and Switzerland.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Portugal
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