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Economy of Portugal

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The economy of Portugal is a capitalist economy. The Global Competitiveness Report for 2005, published by the World Economic Forum, places Portugal on the 22nd position, ahead of countries like Spain, Ireland, France, Belgium and Hong Kong. On the Technology index, Portugal was ranked 20th and on the Public Institutions index Portugal is the 15th best.

The major industries include: oil refineries, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork (leader producer).

The tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications. Financial tertiary have benefited from privatisation, also gaining in terms of efficiency. Tourism has developed significantly and generates approximately 5% of the wealth produced in Portugal.

Most imports come from the European Union countries of Spain, Germany, France, Italy, and the United Kingdom. Most exports also go to other European Union member states.

History

Main article: Economic history of Portugal

Portuguese Colonial Empire

During the Portuguese Empire period, started in the 15th century, until the Carnation Revolution of 1974, the economy of Portugal was centered in trade and raw materials related activities within its vast colonial possessions, mainly in Africa and South America.

After the Carnation Revolution of 1974, Portuguese economic basis changed deeply.

EU membership

Membership in the European Union (EU), achieved in 1986, contributed to stable economic growth and development, largely through increased trade ties and an inflow of funds allocated by the European Union to improve the country's infrastructure. After a recession in 1993, the economy grew at an average annual rate of 3.3%, well above EU averages. In order to qualify for the Economic and Monetary Union (EMU), Portugal agreed to cut its fiscal deficit and undertake structural reforms. The EMU brought to Portugal exchange rate stability, falling inflation, and falling interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets.

In 1999, it continued to enjoy sturdy economic growth, falling interest rates, and low unemployment. The country qualified for the Economic and Monetary Union of the European Union (EMU) in 1998 and joined with 10 other European countries in launching the euro on January 1, 1999. Portugal's inflation rate for 1999, 2.4%, was comfortably low.

Household debt has expanded rapidly. The European Commission, OECD, and others have advised the Portuguese Government to exercise more fiscal restraint. Portugal's public deficit exceeded 3% of GNP in 2001, the EU's self-imposed limit, and left the country open to either EU sanctions or tighter financial supervision. The overall rate of growth slowed in late 2001 and into 2002, making fiscal austerity that much more painful to implement. Portugal will be forced into greater self-sufficiency when EU funds are likely to be discontinued in 2006. In addition, EU expansion into eastern Europe also will erase Portugal's key competitive advantage, low labour costs.

Portugal has made significant progress in raising its standard of living to that of its EU partners. GDP per capita on a purchasing power parity basis rose from 51% of the EU average in 1985 to 78% in early 2002. By 2005 this had dropped to 72% (of the average across all of now 25 EU members, including seven with GDP per capita lower than Portugal) as GDP per capita rose in other EU countries. Unemployment stood at 4.1% at the end of 2001, which was low compared to the EU average.

Employment and wages

As of May 2006, over 420,000 people were unemployed in Portugal. The unemployment rate in the country was 7.7%. In 2007 the unemployment rate reached 8.4%, the highest unemployemnt rate in Portugal since 1987. The average European Union unemployment rate decreased to a record low of 7.3% in 2007. In the Portuguese sub-region of Vale do Ave, the unemployment rate has reached 15%, and in the Península de Setúbal sub-region 12.5%. In addition, nearly 50,000 people with an academic degree are unemployed in Portugal, a number which may rise to over 75,000 if considered economically inactive people who are not registered in the employment centers. This group includes a large proportion of young adults.

The average wage in Portugal is 804.22€ per month, and the minimum wage, which is regulated by law, is 403€ per month. Real wages are flexible, but high social costs and severance packages raise fixed labour costs and make new job creation difficult.

Economy by sector

Fisheries and agriculture now account for about 4% of the GDP, down from approximately 25% in 1960, while still employing 13% of the labour force. On the other hand, the tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The remaining 30% of the GDP is mainly produced by the building and energy sectors.

Natural resources

Natural resources such as forests cover about 34% of the country, namely pine trees (13,500 km²), Cork Oak (6800 km²), Holm Oak (5,340 km²), and Eucalyptus (2,430 km²). Cork is a major production, Portugal produces half of the world's cork. Significant mining resources are tungsten, tin, and uranium.

Agriculture

A considerable part of continental Portugal is dedicated to agriculture, although it does not represent most of the economy. The south has developed an extensive monoculture of cereals and olive trees and the Douro Valley in vineyards. Olive trees (4,000 km²; 1,545 sq mi), vineyards (3,750 km²; 1,450 sq mi), wheat (3,000 km²; 1,160 sq mi) and maize (2,680 km²; 1,035 sq mi) are produced in vast areas. Portuguese wine and olive oil are especially praised by nationals for their quality, thus external competition (even at much lower prices) has had little effect on consumer demand. Portugal is a traditional wine grower, and has exported its wines since the dawn of western civilization; Port Wine, Vinho Verde and Madeira Wine are the leading wine exporters. Portugal is also a quality producer of fruits, namely the Algarve oranges, and Oeste region's pêra rocha (a type of pear). Other exports include horticulture and floriculture products, beet sugar, sunflower oil, cork, and tobacco.

Industry

The major industries include: oil refineries, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork (leader producer). Automotive and other mechanical industries are primarily located in and around Setúbal, Porto, Lisbon, Aveiro, Braga, and Santarém.

Services

The tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications. Financial tertiary have benefited from privatisation, also gaining in terms of efficiency. Tourism has developed significantly and generates approximately 5% of the wealth produced in Portugal.

Competitiveness

Portugal's competitiveness in the world

The Global Competitiveness Report for 2005, published by the World Economic Forum, places Portugal on the 22nd position, ahead of countries like Spain, Ireland, France, Belgium and Hong Kong. This table shows that Portugal has stepped two places regarding the 2004 ranking. On the Technology index, Portugal was ranked 20th, on the Public Institutions index Portugal is the 15th best and on the Macroeconomic index, Portugal is placed on the 37th position. [1]

Competitiveness by city

A study concerning competitiveness of the 18 Portuguese district capitals, complying with World Economic Forum methodology, was made by Minho University economics researchers. It was published in Público newspaper on 30th September 2006. The best-ranked cities in the study were Évora, Lisbon and Coimbra.[2], [3], [4]

Ranking:

Domestic problems

  • Forest Fires: Every year a large area of the Portuguese forest is destroyed. This has an important impact on the economy because many people and industries depend on forestry related activities. It is also a very dramatic ecological problem and a safety issue for the populations.
  • Road Safety: Portugal had one of the highest rates of accidents in Europe, but as a consequence of necessary investments in road modernization coupled with tighter road surveillance, the mortality rate (per million passengers) has fallen rapidly and steadily since the early 2000s to levels below the European Union average. [5]
  • Portugal's Public Debt: The public debt exceeds 60% of GDP. This problem is a threat to the Portuguese economy and the State's financial sustainability.
  • Over-dimensioned Public Sector: The public sector has been generally considered a very large, expensive and inefficient part of the economy. An excess of public employees and useless bureaucracy results in the loss of millions of euros every year. XVII Governo Constitucional government, headed by Prime Minister José Sócrates, created new rules and implemented reforms aiming better efficiency, rationalized resource allocation, fight civil servant excedentary overcapacity (excedentários) and less bureaucracy for both citizens and companies (eg: empresa na hora [6], PRACE - Programa de Reestruturação da Administração Central do Estado [7]), among others.
  • Corruption: Although being generally considered an honest hard-working people, corruption has become an issue of major political and economic significance for the Portuguese. The responsible authorities are trying to combat corruption before it increases further. Many abusive lobbies and corruption schemes are related to concessions, unclear approvals to contractors and economic groups, or job creation for and commercial agreements with friends and family members, mainly involving the huge public sector and companies. Some cases are well known and were widely reported in the media, such as the affairs in several municipalities involving town hall officials and businesspersons.
  • Fiscal Fraud: The Portuguese Finance Ministry stated many times that millions of euros are lost every year because a lot of people and companies don't pay their taxes. Various parts of government tried to implement countermeasures every year. Since the XVII Governo Constitucional government (with José Sócrates as Prime Minister and Teixeira dos Santos as Minister of Finance) Portugal's fiscal policy improved with a steady increase of the number of taxpayers and the growth of the receipt amount from State taxation.
  • Welfare System Bankruptcy: The Portuguese welfare system was on the verge of bankruptcy if radical and pragmatic measures were not taken. Successive governments emphasized this and tried to solve the problem. Several reforms and measures implemented in 2006/2007 by the government (XVII Governo Constitucional - headed by Prime Minister José Sócrates), resulted in improved welfare system financial sustainability but reduced income expectations of future pensioners by nearly 40%, and workers must now work for more years before retirement.

See also

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