The Government has publicly promoted the importance of foreign investment and fostered economic stability and growth, enabling Portugal to surpass EU growth predictions.  Portugal’s successful vaccination campaign contributed to its GDP’s growth at 4.9% in 2021. This growth was also supported by tourism, European funds, and the pent-up savings amassed during the months of the strict lockdown being channeled into consumption.  While the recovery was significant, it was still insufficient to offset the historic drop registered in 2020 (–8.4%).  The energy crisis, and the problems in global supply chains have cast a shadow on the outlook.  A tighter monetary policy because of inflation and the global energy supply and price shocks emanating from the war in Ukraine remain a source of uncertainty.

The governing Socialist Party’s (PS) strategy of steady fiscal consolidation helped Portugal to end 2019 with a historic surplus and has continued the downward trend of the debt/GDP ratio since 2014.  Portugal expects debt-to-GDP to fall 10 percentage points to 115% by end of 2022, below pre-pandemic levels, and will slash it further to 111% in 2023. To achieve this, the Government hopes to pursue fiscal consolidation, slashing the deficit to 0.9% in 2023, from 1.9 in 2022. S&P upgraded Portugal’s sovereign rating by one notch to ‘BBB+’ from ‘BBB,’ noting the government’s caution on expenditure and long-term support from EU funds. 

The ECB’s increase in interest rates in response to increased inflation poses a special risk to Portugal, because of its still high level of sovereign debt and an extremely high proportion of variable rate mortgages (83% of the total).  The European Commission (EC) has also raised concerns about the risk of overvalued housing prices in Portugal, which, for example, increased by 13% year-over-year in the second quarter of 2022. American exporters face competition in Portugal from savvy European competitors and entrenched PRC business interests. European companies are already familiar with the business culture, financing, regulations, standards, etc of operating in Portugal. In addition, they do not face EU-wide import tariffs that U.S. companies have to pay to bring their products into Portugal.