Sailing rough waters: Portugal

From its rich naval history, which made it once one of the wealthiest countries in Europe, to unprecedented social and economic unrest, Portugal is still finding its place in the European Union. While it isn’t all smooth sailing, there is hope on the horizon.

Like so many countries around the globe, Portugal is currently in the grips of economic and social turbulence.

The country has been swept up in the wave of strikes by workers across Europe over the last nine months, joining the likes of France, Italy, Germany and Spain, where scores of protests across major cities continue to break out as citizens seek better wages and improved living conditions that they believe should match current inflation rates.

So, what does that mean for a nation that sits in a precarious economic position at the best of times, and will it turn to its strengths to find a way through?

Strike force
Strikes have ramped up over this northern summer, particularly within the transportation industry, disrupting holidaymakers in both Portugal and across the continent. This past January more than 150,000 people took to the streets of Lisbon – the largest gathering since the toppling of the far-right Salazar regime in 1974. In February and March, Portuguese railway workers paralysed hundreds of trains, while an ongoing strike by civil servants has forced the delay of more than 21,000 trials and legal proceedings. A call to action was declared on 28 June, referred to as a National Day of Struggle.

Essentially, strikes have spread to almost every sector within the working class and recent figures may give an indication as to why.

Inflation in Portugal 2022 exceeded records, with a rise of 7.8 per cent and the forecast for this year stands at 5.4 per cent, numbers not seen in the last 30 years. Meanwhile, food prices increased 20 per cent over the past year and house prices rose 18.7 per cent. Rents increased by more than 35 per cent in major cities like Lisbon and Porto.

Many are blaming price increases on recent policy changes that have encouraged young workers who left the country to return, as well as the 16,000 so-called “digital nomads” who currently live in Portugal and work remotely but earn much more than the national average.

A rich history
Portugal may now be one of the poorest countries in Europe, but it wasn’t always that way.

At a time when its colonial empire included Asia, Africa and South America, it boasted great wealth but without domestic investment, its gains slowly dwindled. Some experts blame the country’s failure to industrialise as quickly as other jurisdictions as part of the reason they didn’t prosper, while others suggest it was the number of political crises over recent centuries, including a civil war.

It was in the mid-1970s, after the Portuguese revolution, that the country’s economy broke away completely from its overseas assets and in 1986 joined the European Economic Community.

Presidential take
Today Portugal’s economy is dominated mainly by manufacturing and is heavily reliant on tourism dollars. Its poor productivity compared to other EU countries reflects its low investment in new technologies and, historically, high levels of bureaucracy that have limited entrepreneurship. In addition, the share of low-skilled workers is one of the highest in Europe – 46 per cent in 2017 compared to 17 per cent in the EU, according to the International Monetary Fund.

Finding its way out of economic crisis is something even the country’s President, Marcelo Rebelo de Sousa is expecting may take some time. He told journalists earlier this year that unemployment figures (currently at 6.5 per cent, up half a percentage point over last year) signals that development is slow. He did, however, point out that Portugal isn’t alone in its struggle.

“Even major European powers like Germany are experiencing slow progress, he said.

“Therefore, I would say, always with caution, that the exit from the crisis period – which comes from the past, the pandemic aggravated it, and the war also aggravated it, it has many factors – is an exit that may take a little longer than some expected.”

Despite this, Rebelo de Sousa considers the fact that, in 2022, the Portuguese economy grew by 6.7 per cent in gross domestic product as good news.

“Now, we already know that in 2023 such growth is not possible and, therefore, we will see exactly what the economy’s evolution will be. I belong neither to the pessimists nor to the raving optimists, and therefore I like to be in a very quiet and very realistic and intermediate position,” he said.

But economists are clear, despite tough times for workers, Portugal’s economy will recover, pointing out that it bounced back relatively well after COVID. Recent economic reports from the National Statistics Institute give mixed reviews. As mentioned, Portugal’s economy grew 6.7 per cent in 2022, its strongest pace in 35 years thanks in part to tourism and domestic demand, however, inflation put the brakes on the fourth quarter with the GDP growing just 2.7 per cent between October and December, compared to 4.3 per cent in the previous three months.

Predicted outcomes
According to the most recent figures from the European Commission on Economy and Finance, Portugal’s economic growth will pick up in the second half of this year. Inflation is projected to moderate, although wage adjustments amid the high unemployment rates are expected to keep pressure on prices of services. After narrowing to 0.4 per cent of GDP in 2022, Portugal’s general government deficit is forecast to improve to 0.1 per cent of GDP in 2023 and 2024.

In annual average terms, unemployment is forecast at 6.5 per cent in 2023 and 6.3 per cent in 2024 amid a moderate increase in employment and wages. Overall, inflation is forecast at 5.1 per cent in 2023 and 2.7 per cent in 2024.

The good news
The future of Portugal is still bright with a number of factors on its side. According to Ernst & Young, the country is gaining ground as an investment destination in Europe and capturing higher quality investment that “prove Portugal’s success in transitioning to a more innovative and knowledge-intensive economy.”

Another benefit, according to experts, is the fact that it has one of the highest percentages of English-speakers in the world (among non-native English-speaking countries), a huge advantage in the business world.

The World Travel and Tourism Council predicted last year that the travel and tourism sector in Portugal would drive the national economic recovery beginning this year, and could even surpass pre-pandemic levels.

There are also signs that the government is beginning to do more to encourage foreign investment, especially by attracting high-tech companies and reduce bureaucracy.

Earlier this year, Spain-based trailer builder, Lecitrailer, expanded its aftersales support network in Mangualde, Portugal, with a 36,000-square-metre site.

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