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World > Europe > Portugal > Economy (Notes)

Portugal - Economy (Notes)


ECONOMY
Portugal's membership in the European Union (EU) contributed to stable economic growth, largely through increased trade and an inflow of EU funds for infrastructure improvements. Until 2001, average annual growth rates consistently exceeded those of the EU average. Due to slow economic growth, Portugal has lost ground relative to the rest of the EU since 2002. Portugal's per capita GDP dropped from 80% of the EU-25 average in 2001 to 71% in 2006, causing the country to drop three places to 18th in purchasing power parity, behind Greece, the Czech Republic, and Slovenia.

In order to enter the European Monetary Union (EMU) in January 1999, Portugal agreed to cut its fiscal deficit and undertake structural reforms. The EMU brought exchange rate stability, lower inflation, and lower interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets. However, private sector borrowing increased dramatically. By 2001, the economy was in serious external imbalance, with a large current and capital account deficit. Portugal was the first country to breach the Eurozone's Stability and Growth Pact budget deficit target of 3%. The Government of Portugal met the 3% target from 2002-2004, but the deficit surged to an all-time high of 6% in 2005. The government reduced the deficit to 4.6% in 2006 mainly through revenue generating measures. The 2007 budget aims to reduce the deficit to 3.7% through spending cuts and structural reforms.

Helped in part by a wider EU recovery, the Portuguese economy grew by 1.4% in 2006, up from a 0.3% the year before. The Portuguese Government predicts the growth rate will accelerate to 1.8% in 2007. Unemployment was 7.6% in 2006.

Portugal's economy is based on traditional industries such as textiles, clothing, footwear, cork and wood products, beverages (wine), porcelain and earthenware, and glass and glassware. In addition, the country has increased its role in Europe's automotive sector and has a world-class mold-making industry. Services, particularly tourism, are playing an increasingly important role. Portugal?s EU funding will be cut by 10%, to 22.5 billion euros, during the 2007-2013 period. EU expansion into eastern Europe has erased Portugal's historic competitive advantage and relative low labor costs. The government is working to change Portugal's economic development model from one based on public consumption and public investment to one focused on exports, private investment, and development of the high-tech sector.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Euro Exchange Rates
Notes and Commentary: Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Euro Exchange Rates


Notes and Commentary
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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