The important tourism and real estate sectors are the biggest drivers of growth. U.S. tourists, for example, jumped to over 2 million in 2023 (a new record) and Americans are now the top nationality among foreign buyers of Portuguese property. The labor market continues to show remarkable resiliency, with unemployment at 6.5% in 2023, up slightly from the all-time low of 6.0% in 2022. The continuing EU fiscal stimulus from the Recovery and Resilience Facility (RRF) has been balanced by the European Central Bank’s (ECB) tighter monetary stance. The inflation rate was 4.3% in 2023 and the Bank of Portugal predicts 2.9% inflation for 2024. The government has shown a strong commitment to reducing the fiscal debt and deficit, reducing sovereign debt to 99% of GDP in 2023, thereby boosting its sovereign credit ratings.
The Bank of Portugal has identified potential political instability as a near and medium-term risk to the economy. Prime Minister Costa resigned in November 2023 amid an investigation into alleged irregularities committed by his majority Socialist administration. New elections resulted in a minority center-right government in March 2024. Growth is projected to reach only 1.6% in 2024, and the most critical test will likely come in mid-October, when the 2025 budget will need to be pushed through parliament by the minority government.
Medium term, wages have not kept pace with skyrocketing housing costs, particularly in the Lisbon and Porto metro areas, resulting in rising labor strife. Public employees including teachers, health professionals, and law enforcement personnel have demanded higher wages.
Longer term, Portugal has also struggled with a chronic emigration of highly qualified workers for higher paying careers in Switzerland, France, the UK, Luxembourg and elsewhere. As of January 2024, Portugal had the highest emigration rate in Europe, with 30% of its people between 15 and 39 residing abroad, or 850,000 people, according to Emigration Observatory data. This number is part of the overall 2.3 million Portuguese nationals residing abroad. Emigration combined with a dwindling fertility rate in Portugal could have resulted in a demographic collapse, without net immigration from Brazil and elsewhere.
U.S. FDI inflows to Portugal quadrupled in 2023 to €2.1 billion, making the United States the country’s top 2023 investor. Accumulated FDI stock from the United States stands at €10.3 billion, behind Spain, France, the UK, and the PRC. The United States is also Portugal’s largest non-EU trading partner. According to the U.S. Department of Commerce, in 2023, U.S. exports of goods and services to Portugal were $4 billion, down 8.9% from 2022, and imports from Portugal were $9.2 billion, up 12.8% from 2022. As a result, the trade deficit with Portugal increased to $5.2 billion. Many U.S. companies have established business/service delivery centers in Portugal, taking advantage of Portugal’s relatively low-cost, talented, and multilingual labor force. In addition, U.S. companies continue to invest in undersea data cables that puts Portugal at the heart of global data traffic – from Google’s Equiano and Nuvem, to the latest Meta’s 2Africa submarine cable system. Portugal’s technology startup scene is thriving, with firms tapping into the U.S. startup ecosystem for funding, knowhow, networks, and customers, which ultimately produces new jobs on both sides of the Atlantic.
Portugal has embarked on an unprecedented push into renewable energy and electric mobility, creating opportunities in everything from offshore wind and green hydrogen to lithium mining and refining and battery technology.
