ECONOMICS

Portugal Economic Indicators

Portugal: A Thriving Economy with Strong Foundations for Growth

Portugal, a Southern European nation with a rich cultural heritage, strategic Atlantic location, and a skilled workforce, continues to thrive in today’s globalized economy. As a key gateway between Europe, Africa, and the Americas, Portugal has leveraged its competitive business environment, strong tourism sector, and growing technology ecosystem to attract significant investment. Portugal’s focus on renewable energy, technological innovation, and inclusive growth reinforces its position as a resilient and forward-looking economy amid global economic shifts.

This section highlights Portugal’s current economic indicators and ambitious outlook for 2024, outlining the key sectors driving growth and challenges on the horizon.

Portugal’s Economic Outlook: Navigating Opportunities and Challenges

In 2024, Portugal’s economy is projected to grow by 1.7%, reflecting moderate growth amid slowing global demand and rising interest rates. However, robust domestic consumption, EU-funded recovery programs, and investments in green energy and technology are expected to drive stronger growth of 2.4% in 2025 and 2.8% by 2026.

Key highlights of the 2024 economic forecast:

  • GDP Growth: 1.7% in 2024, improving to 2.8% by 2026.
  • Inflation: Expected to moderate to 3.6% in 2024 before aligning closer to the European Central Bank’s 2% target by 2026.
  • Unemployment: Projected to remain stable at 6.5% in 2024, gradually decreasing to 6.1% by 2026 as labor market conditions improve.
  • Government Deficit: Forecasted at 1.8% of GDP in 2024, reflecting disciplined fiscal management but persistent public spending on infrastructure and social programs.
  • Public Debt: Expected to decline from 107% of GDP in 2024 to below 100% by 2026 due to economic growth and fiscal consolidation efforts.

Portugal’s robust tech and renewable energy sectors have emerged as pillars of growth, with investments in digital transformation, solar energy, and offshore wind projects positioning the country as a European leader in sustainability. Additionally, Lisbon and Porto have become vibrant hubs for innovation and startups, attracting both talent and international capital.

Portugal remains committed to building an economy that balances economic opportunity, sustainability, and innovation, fostering long-term resilience and global competitiveness.

Source: Banco de Portugal, The Portuguese economy: 2024–26.

Key Growth Drivers and Sectoral Contributions

Portugal’s economic development thrives on its strategic Atlantic location, connecting Europe, Africa, and the Americas. Benefiting from EU Recovery and Resilience Facility (RRF) funding, Portugal has prioritized investments in infrastructure, renewable energy, digital transformation, and transport. Public sector investment reached 4.8% of GDP in 2023, with significant allocations to green energy projects and digital modernization.

Portugal is internationally recognized for its growing tech and innovation ecosystem, supported by a multilingual, skilled workforce. Cities like Lisbon and Porto have become innovation hubs, attracting international startups, tech companies, and talent. Meanwhile, traditional sectors such as agriculture, tourism, and industry remain integral, employing over 35% of the workforce and contributing steadily to GDP growth.

Portugal’s unemployment rate stood at 6.5% by the end of 2023, reflecting an improved labor market despite global uncertainties. Wage growth, particularly in the private sector, has helped offset inflationary pressures, boosting household consumption. However, real wage increases are expected to stabilize after 2024 as inflation moderates.

Inflation, which peaked at 5.4% in 2023, is projected to decline to 3.6% in 2024, driven by lower energy prices and food costs. The Bank of Portugal remains committed to maintaining inflation within the 2% target range by 2026, aligning with broader Eurozone policies.

Foreign Direct Investment (FDI)

Portugal continues to strengthen its role as a prime destination for foreign direct investment (FDI) in Europe. In 2023, net FDI inflows reached EUR 6.3 billion, marking a slight decline due to global economic uncertainty. Despite this, Portugal remains highly attractive to international investors, particularly in key sectors:

  • Renewable energy (solar and wind projects)
  • Technology and innovation
  • Real estate and tourism
  • Financial services

At the close of 2023, total FDI stock in Portugal reached EUR 172 billion, with 70% of investments focused on greenfield projects. Portugal’s commitment to sustainability and its competitive business environment have further driven new market entries and expansion of existing operations, solidifying its long-term appeal.

Source: Statista, Value of foreign direct investment (FDI) outward and inward flows in Portugal from 2005 to 2023.

Key sectors drove Portugal’s FDI landscape in 2023. The real estate and tourism sectors attracted the highest share of net FDI flows, totaling EUR 2.8 billion, with strong demand for commercial and residential developments. The renewable energy sector, particularly in solar and wind power projects, followed closely with investments of EUR 2.4 billion, reflecting Portugal’s leadership in the European green energy transition.

Financial services and insurance received EUR 1.9 billion, while the technology and innovation sector saw robust growth with inflows reaching EUR 900 million, supported by Portugal’s status as a tech hub for startups and multinationals.

These four sectors alone constituted over 85% of total FDI flows for the year.

Portugal’s geographical distribution of FDI highlights the dominance of the Lisbon Metropolitan Region, which attracted 65.2% of total investments, underscoring its role as the country’s economic and financial hub.

Key investing countries included Spain, France, and Germany, which together accounted for over 45% of Portugal’s total FDI inflows, reflecting long-term investor confidence and Portugal’s strategic position in Europe.

Foreign Direct Investment (FDI) and Trade Dynamics in Portugal

Foreign direct investment continues to drive Portugal’s trade and economic performance. In 2023, FDI enterprises expanded their exports by 2.3%, reaching EUR 8.7 billion, while imports declined slightly by 1.5%, narrowing the trade deficit to EUR 12.8 billion. Portugal’s service exports—led by tourism, technology services, and logistics—grew robustly by 8.1%, contributing to a surplus of EUR 10.5 billion.

Despite these successes, challenges remain. The construction and real estate sector faced a downturn, recording negative FDI flows of EUR -30 million, primarily driven by market correction and repayment of debt financing. However, positive revaluations of tangible fixed assets suggest the sector’s long-term recovery potential.

Portugal’s FDI outlook remains promising, bolstered by its strategic geographic position, a highly skilled workforce, and a favorable business environment. However, with non-residents’ net income on FDI reaching EUR 10.6 billion—over 70% higher than net inflows—Portugal faces the challenge of identifying new current account financing sources to mitigate rising external debt pressures.

In conclusion, Portugal’s resilient FDI landscape reflects strong investor confidence, positioning the country to maintain sustainable growth through structural reforms, innovation, and integration into global markets.

Pillars of Growth: Technology and Education in Portugal

In recent years, Portugal has positioned itself as a leading technology and innovation hub in Europe, driven by significant investments from both public and private sectors.

The European Investment Bank (EIB) has played a pivotal role, committing over EUR 1.2 billion in 2022 alone to technology-oriented projects, including renewable energy solutions, electric vehicle infrastructure, and digital transformation initiatives. Similarly, International Finance Corporation (IFC) investments exceeded USD 500 million in 2023, strengthening Portugal’s tech ecosystem and private sector innovation.

Global tech companies such as Google, Amazon, and Mercedes-Benz have established research and development (R&D) centers in Portugal, leveraging the highly skilled and cost-effective workforce. These hubs focus on cutting-edge technologies like artificial intelligence, cybersecurity, and sustainable tech solutions. Homegrown unicorns, including Feedzai and OutSystems, have reinvested in Portugal’s innovation ecosystem, fostering a dynamic entrepreneurial environment.

Venture capital funding has accelerated Portugal’s tech growth, reaching over EUR 900 million in 2023, with startups like Remote and Sword Health securing multimillion-euro funding rounds. Innovation hubs, accelerators, and incubators such as Beta-i and Bright Pixel Capital provide critical mentorship, funding, and resources for scaling operations.

Education as a Foundation for Growth

Education remains a cornerstone of Portugal’s long-term growth strategy. Significant progress has been achieved through increased private and public investment. However, challenges persist: Portugal’s government expenditure on education accounted for 3.8% of GDP in 2022, below the EU average of 4.7%. This highlights an opportunity for targeted reforms and investment to further align the education system with the evolving demands of a technology-driven economy.

By strengthening educational outcomes and fostering greater public-private partnerships, Portugal is well-positioned to develop the skills and workforce required to support its ambitious growth in technology and innovation sectors.

Source: Eurostat

Advancing Education in Portugal

Portugal has made significant strides in compulsory education, which now spans from age 6 to 18, aligning with the European Union average. Early childhood education has also seen notable improvements, with 88% of children enrolled one year before primary school, a figure approaching the EU average of 91%. Similarly, tertiary education attainment has grown, with 25% of adults holding a degree, marking substantial progress compared to previous generations.

Private and public collaboration plays a vital role in advancing education. Global technology leaders like Google and Microsoft have launched coding bootcamps and digital skills training initiatives, preparing the workforce for the demands of a technology-driven economy. Additionally, Portuguese EdTech startups such as DreamShaper and ClassDojo are modernizing classrooms with innovative tools, supported by increasing private sector investments.

Challenges and Opportunities

Portugal faces critical challenges within its education sector, including:

  • Underfunding compared to EU peers, with government spending on education at 3.8% of GDP (below the EU average of 4.7%).
  • Regional disparities in access to quality education, particularly in rural areas.
  • A skills gap between academic curricula and evolving labor market demands.

Teacher shortages persist in key disciplines such as STEM and digital education, underscoring the need for targeted reforms. Despite these challenges, Portugal’s commitment to educational innovation and digital learning offers a promising pathway. Increased investments in STEM education, digital literacy, and infrastructure upgrades will be critical to equipping future generations with the skills needed to thrive in a rapidly evolving global economy.

Resources 

2025-02-13T18:42:17+01:00
Portugal Regulatory Environment

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2025-02-13T18:37:20+01:00
Portugal Economic Indicators

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Portugal Economic Indicators

Portugal, a Southern European nation with a rich cultural heritage, strategic Atlantic location, and a skilled workforce, continues to thrive in today’s globalized economy. As a key gateway between Europe, Africa, and the Americas, Portugal has leveraged its competitive business environment, strong tourism sector, and growing technology ecosystem to attract significant investment. Portugal’s focus on renewable energy, technological innovation, and inclusive growth reinforces its position as a resilient and forward-looking economy amid global economic shifts.

Learn MoreView Project