Economy of Portugal

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Portugal is a capitalist economy with a per capita gross domestic product two-thirds that of the four big Western European economies. The country continues to run a trade deficit and a balance of payments deficit. The government is working to modernize capital plant and increase the country's competitiveness in the increasingly integrated world markets. Improvement in the education sector is critical to the catch-up process.

Portugal's economy is based on traditional industries such as textiles, clothing, footwear, cork and wood products, beverages (including wine), porcelain and earthenware, glass and glassware, and food industries. In addition, the country has increased its role in Europe's automotive sector and injection moulding industries. Services, particularly tourism and finance, are playing an increasingly important role in the economy.

Portugal's balance of trade is negative. It buys mostly in the European Union from: Spain, Germany, France, Italy, and the United Kingdom. It also sells most of its products within the union to: Germany, Spain, and France mostly.

1 History
- 1.1 Portuguese Colonial Empire
- 1.2 EU membership
2 Economy by sector
3 Competitiveness
- 3.1 Portugal's competitiveness in the world
- 3.2 Competitiveness by city
4 Statistics
5 Endogenous domestic problems
6 See also

[edit] History

Main article: Economic history of Portugal

[edit] Portuguese Colonial Empire

During the Portuguese Empire period, started in the 15th century, until the Carnation Revolution of 1974, the economy of Portugal was centered in trade and raw materials related activities within its vast colonial pocessions, mainly in Africa and South America.

After the Carnation Revolution of 1974, Portuguese economic basis changed deeply.

[edit] EU membership

Membership in the European Union (EU), achieved in 1986, contributed to stable economic growth and development, largely through increased trade ties and an inflow of funds allocated by the European Union to improve the country's infrastructure. After a recession in 1993, the economy grew at an average annual rate of 3.3%, well above EU averages. In order to qualify for the Economic and Monetary Union (EMU), Portugal agreed to cut its fiscal deficit and undertake structural reforms. The EMU brought to Portugal exchange rate stability, falling inflation, and falling interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets.

In 1999, it continued to enjoy sturdy economic growth, falling interest rates, and low unemployment. The country qualified for the Economic and Monetary Union of the European Union (EMU) in 1998 and joined with 10 other European countries in launching the euro on January 1, 1999. Portugal's inflation rate for 1999, 2.4%, was comfortably low.

Household debt has expanded rapidly. The European Commission, OECD, and others have advised the Portuguese Government to exercise more fiscal restraint. Portugal's public deficit exceeded 3% of GNP in 2001, the EU's self-imposed limit, and left the country open to either EU sanctions or tighter financial supervision. The overall rate of growth slowed in late 2001 and into 2002, making fiscal austerity that much more painful to implement. Portugal will be forced into greater self-sufficiency when EU funds are likely to be discontinued in 2006. In addition, EU expansion into eastern Europe also will erase Portugal's key competitive advantage, low labour costs.

Portugal has made significant progress in raising its standard of living to that of its EU partners. GDP per capita on a purchasing power parity basis rose from 51% of the EU average in 1985 to 78% in early 2002. By 2005 this had dropped to 72% (of the average across all of now 25 EU members, including seven with GDP per capita lower than Portugal) as GDP per capita rose in other EU countries. Unemployment stood at 4.1% at the end of 2001, which was low compared to the EU average. Real wages are flexible, but high social costs and severance packages raise fixed labour costs and make new job creation difficult.

As of May 2006, over 420,000 people were unemployed in Portugal. The unemployment rate in the country was 7,7%. Some regions, like Vale do Ave, reach 15%.

[edit] Economy by sector

Fisheries and agriculture now account for about 4% of the GDP, down from approximately 25% in 1960, while still employing 13% of the labour force. On the other hand, the tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The remaining 30% of the GDP is mainly produced by the building and energy sectors.

[edit] Natural resources

Natural resources such has copses cover about 34% of the country, namely pine trees (13,500 km²), cork oak (6800 km²), holm oak (5,340 km²), and the eucalyptus (2,430 km²). Cork is a major production, Portugal produces half of the world's cork. Significant mining resources are tungsten, tin, and uranium.

[edit] Agriculture

A considerable part of continental Portugal is dedicated to agriculture, although it does not represent most of the economy. The south has developed an extensive monoculture of cereals and olive trees and the Douro Valley in vineyards. Olive trees (4,000 km²; 1,545 sq mi), vineyards (3,750 km²; 1,450 sq mi), wheat (3,000 km²; 1,160 sq mi) and maize (2,680 km²; 1,035 sq mi) are produced in vast areas. Portuguese wine and olive oil are especially praised by nationals for their quality, thus external competition (even at much lower prices) has had little effect on consumer demand. Portugal is a traditional wine grower, and has exported its wines since the dawn of western civilization; Port Wine, Vinho Verde and Madeira Wine are the leading wine exporters. Portugal is also a quality producer of fruits, namely the Algarve oranges, and Oeste region's pêra rocha (a type of pear). Other exports include horticulture and floriculture products, beet sugar, sunflower oil, cork, and tobacco.

[edit] Industry

The major industries include: oil refineries, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork. Automotive and other mechanical industries are primarily located in and around Setúbal, Porto, Aveiro, Braga, and Santarém.

[edit] Services

The tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications. Financial tertiary have benefited from privatisation, also gaining in terms of efficiency. Tourism has developed significantly and generates approximately 5% of the wealth produced in Portugal.

[edit] Competitiveness

[edit] Portugal's competitiveness in the world

The Global Competitiveness Report for 2005, published by the World Economic Forum, places Portugal on the 22nd position, ahead of countries like Spain, Ireland, France, Belgium and Hong Kong. This table shows that Portugal has stepped two places regarding the 2004 ranking. On the Technology index, Portugal was ranked 20th, on the Public Institutions index Portugal is the 15th best and on the Macroeconomic index, Portugal is placed on the 37th position. [1]

[edit] Competitiveness by city

A study concerning competitiveness of the 18 Portuguese district capitals, complying with World Economic Forum methodology, was made by Minho University economics researchers. It was published in Público newspaper on 30th September 2006. The best-ranked cities in the study were Évora, Lisbon and Coimbra.[2], [3], [4]

Ranking:

1.Évora: 7,293
2.Lisbon: 6,454
3.Coimbra: 6,042
4.Beja: 5,660
5.Leiria: 5,609
6.Castelo Branco: 5,608
7.Aveiro: 5,452
8.Guarda: 5,178
9.Santarém: 5,037
10.Portalegre: 4,711
11.Viseu: 4,628
12.Vila Real: 5,514
13.Bragança: 4,271
14.Setúbal: 4,070
15.Braga: 4,055
16.Faro: 3,971
17.Viana do Castelo: 3,859
18.Porto: 3,577

[edit] Statistics

GDP: purchasing power parity - USD 204,4 billion (2005 est.)

GDP - real growth rate: 0,9% (Q2 2006)

Government deficit: 6.0% of GDP (2005)

Government Debt: 94.4 bn Euro (2005)

GDP - per capita: purchasing power parity - USD 19,300 (2005 est.)

GDP - composition by sector:
agriculture: 5,2%
industry: 28,9%
services: 65,9% (2005 est.)

Population below poverty line:< 22% (2005)

Household income or consumption by percentage share:
lowest 10%: 3.1%
highest 10%: 28.4%

Inflation rate (consumer prices): 3.0% (Sep 2006)

Labour force: 5.1 million (2000 est.)

Labour force - by occupation: services 60%, industry 30%, agriculture 10% (1999 est.)

Unemployment rate: 7.2% (Sep 2006)

Budget:
revenues: USD 78,84 billion
expenditures: USD 90,27 billion, including capital expenditures of $NA (2005 est.)

Industries: textiles and footwear; wood pulp, paper, and cork; metalworking; oil refining; chemicals; ceramics; electronics and communications equipment; rail transportation equipment; aerospace equipment; ship construction and refurbishment; fish canning; wine; tourism

Industrial production growth rate: 1.5% (2002 est.)

Electricity - production: 44.32 TWh (2001)

Electricity - production by source:
fossil fuel: 64.5%
hydro: 31.3%
nuclear: 0%
other: 4.2% (1998)

Electricity - consumption: 41.48 TWh (2001)

Electricity - exports: 3.479 TWh (2001)

Electricity - imports: 3.743 TWh (2001)

Agriculture - products: grain, potatoes, olives, grapes; sheep, cattle, goats, poultry, beef, dairy products

Exports: 25 G$ (f.o.b., 1998)

Exports - commodities: clothing and footwear, machinery, chemicals, cork and paper products, hides

Exports - partners: EU 79.7% (Germany 19.2%, Spain 18.6%, France 12.6%, UK 10.3% Benelux 5.4%, Italy), US 5.8% (2001)

Imports: 39 G$ (f.o.b., 2001)

Imports - commodities: machinery and transport equipment, chemicals, petroleum, textiles, agricultural products

Imports - partners: EU 74.2% (Spain 26.5%, Germany 13.9%, France 10.3%, Italy 6.7%, UK 5%), US 3.8%, Japan 1.9% (2001)

Economic aid - donor: ODA, USD 271 million (1995)

Currency: 1 euro (EUR) = 100 cents (local usage: cêntimos)

Fiscal year: calendar year (1 January - 31 December)

[edit] Endogenous domestic problems

Forest Fires: Every year a large area of the Portuguese forest is destroyed. This has an important impact in the economy because many people and industries depend on forestry related activities. It is also a very dramatic ecological problem and a security issue for the populations.
Road Safety: Portugal has one of the highest rates of accidents in Europe. Thousands of lives are lost every year on the roads and highways across the country.
Portugal's Public Debt: The public debt has been exceeding 60% of GDP. This problem is a threat for the Portuguese economy and for the State's financial sustainability.
Over-dimensioned Public Sector: The public sector of the economy is generally considered very large, expensive and inefficient. There are an excess of public employees and an useless bureaucracy responsible for the lost of millions of euros every year.
Corruption: Although being generally considered an honest hard-working people, corruption has become an issue of major political and economic significance for the Portuguese. The government responsibles are trying to combat corruption before it reaches highest levels. Many abusive lobbies and corruption schemes are related with concessions, unclear approvals to contractors and economic groups, or job creation and commercial agreements for friends and family members, mainly inside the huge public sector. Some cases are well known and were widely reported in the media, such as the problems in the Felgueiras, Marco de Canaveses and Gondomar municipalities.
Fiscal Fraud: Portuguese Finance Ministry stated many times that millions of euros are lost every year because a lot of people and companies don't pay their taxes. Government members take measures every year, but the problem remains unsolved.
Welfare System Bankruptcy: The Portuguese welfare system is on verge of bankruptcy if radical and pragmatic measures won't be taken. Successive governments have emphasized this and are trying to solve the problem.