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Portugal Economic Snapshot

Going for Growth 2021 - Portugal

The pandemic highlighted gaps in the social safety net and risks aggravating the situation for disadvantaged students and vulnerable workers. Increasing the coverage of out-of-work benefits should become the top policy priority. Strengthening efforts to provide individualised support to students at risk remains crucial, as does upskilling of large parts of the workforce, especially with digital skills.

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2021 Structural Reform Priorities

  • Labour market: Reinforce social protection for non-standard employment to reduce precariousness and poverty
  • Education and skills: Raise skills to strengthen productivity, foster the creation of higher quality jobs, and improve equity and well-being
  • Competition and regulation: Strengthen competition in non-manufacturing sectors to bolster export competitiveness and productivity
  • Insolvency: Reduce high corporate leverage to raise investment and promote job creation
  • Tax system: Reduce exemptions and special rates to enhance efficiency of the tax system and strengthen public finance sustainability

 

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Economic Forecast Summary (December 2020)

GDP is set to fall by 8.4% in 2020 before recovering by 1.7% in 2021 and 1.9% in 2022. The pick-up in 2021 will mainly be supported by pent-up demand. Afterwards, a broader recovery is projected to unfold, notably in the most affected sectors such as tourism and hospitality, under the assumption of an improved sanitary situation as an effective vaccine is deployed. The unemployment rate will peak in 2021 and remain above its pre-crisis level through the end of 2022. Public debt (Maastricht definition) is expected to reach 139% of GDP in 2022.

The fiscal deficit is projected to decrease in 2021-22 as the economy rebounds and some discretionary fiscal support is withdrawn. To avoid derailing the recovery, a return to fiscal prudence should take place only after the recovery is firmly underway. Scaling up lifelong learning programmes and strengthening work based learning can facilitate reallocation of workers in the economy. Promoting market-based non debt instruments to over-leveraged but viable firms would fasten their growth potential.

2019 Economic Survey of Portugal

The Portuguese economy continues to recover, with past structural reforms and more favourable global economic conditions contributing to the upswing. The economy has largely been sustained by strong export performance since 2010, but domestic demand is now also growing solidly. After receding in the five years following the crisis, employment has picked up and the unemployment rate has fallen from 17% to below 7%. Over the same period, the economy has notably increased its reliance on some renewable energy sources, such as wind power.

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