According to Trading Economics global macro models and analysts, GDP of Portugal is predicted to reach 240.00 USD billion by the end of 2021. According to our econometric models, Portugal’s GDP will trend around 260.00 USD billion in 2022 and 280.00 USD billion in 2023 in the long run.
Is Portugal a prosperous country?
It is also a World Bank and World Trade Organization member. In this mainly service-based economy, the country’s gross domestic product per capita is among the lowest among wealthy nations, and unemployment rates are high.
Is Portugal in 2021 an impoverished country?
Portugal is one of Europe’s most unequal countries. The wealthiest citizens have a five-fold larger income than those who are poor.
Why is Portugal so impoverished?
In Portugal, unemployment is one of the main causes of poverty. In 2018, the unemployment rate was reduced to 7.9%. In comparison to other countries around the world, Portugal did not make economic gains after the 2008 recession. Since then, the economy has been slowing down.
Is Portugal more prosperous than Spain?
It’s been a long time since Portugal and Spain, the Iberian Peninsula’s two neighbors, joined Greece and Ireland as the EU’s poorest performers, the so-called PIGS (a ugly, disparaging acronym used to designate these countries’ economies during the financial crisis). Since then, a great deal has changed.
Portugal is now frequently mentioned as an example of economic revival, with international institutions applauding its efforts. The majority of the acclaim is based on the low unemployment rate. To put the allegation in context, as shown in Figure 1, at the end of the previous expansionary cycle, Spain and Portugal had identical unemployment rates. Since then, the Spanish rate has risen to a historic high of 26.3 percent in mid-2013, while unemployment in Portugal has risen to 17.5 percent during the same time period. As we will see later in our analysis, the impact of the Spanish real-estate bubble is visible here. From 2013 onwards, both rates fell in lockstep, with Spain’s decreasing to 15.9% (10.4 percentage points) and Portugal’s plummeting to 7.4%. (down 10.1 pp). The primary difference is that Portuguese unemployment is currently lower than it was in 2008, whilst Spain’s is still significantly higher.
Both countries are making progress after going through difficult periods. Portugal need a 78 billion (US$92.2 billion) rescue from EU institutions and the International Monetary Fund seven years ago. Portugal was released from international aid in June 2014 after a series of economic and budgetary reforms implemented by a center-right coalition government and overseen by the IMF and the EU. Since then, the Portuguese economy has grown at a faster rate. In 2017, the country was also able to depart the eurozone’s ‘excessive deficit procedure.’
Things have also significantly improved in Spain. Rating agencies Moody’s, Standard and Poor’s, and Fitch have all improved Spain’s government debt ratings in recent months. The country’s economy appears to be on a more robust but resilient path than in prior expansions. This is reflected in the IMF’s and EU Commission’s revised growth predictions for 2018 and 2019. The days of excruciatingly painful unemployment (which peaked at 26%) and massive budget deficits (which peaked at 11 percent of GDP) appear to be far gone.
Despite these apparent parallels in recent achievements, there appears to be a consensus, particularly among progressive media and commentators, to refer to Portugal’s development as a “miracle,” while undervaluing Spanish advances. The current Portuguese socialist government, which has been in office since October 2015 and is backed by two far-left parties in parliament, claims that the country’s outstanding performance is due to its anti-austerity agenda, which included rolling back pension and pay cuts. The popularity gained by former Finance Minister Mario Centeno, a Harvard-educated economist, as a result of these policies helped him win the contest for President of the Eurogroup, one of the eurozone’s most crucial policymaking positions.
Some questions come to mind at this point. Are all of these assertions true and well-supported? Is Portugal’s economic development as strong and long-term as it claims to be? Are the socioeconomic underpinnings and models in Portugal and Spain similar? What about their individual flaws? We now want to compare the socio-economic patterns of the two Iberian countries, using a similar exercise to that devised for Italy and Spain. Our ultimate goal is to determine if Portugal’s performance is structural or simply transitory.
Demographics
Without a question, demography is one of the most pressing challenges in Portugal. According to the British Centre for Policy Studies, EU members have suffered comparable demographic trends in recent years, including a dropping fertility rate, an aging population, and slowing population growth rates. Portugal, however, stands out among Western European countries. Its population growth rate has slowed dramatically in recent years, and it now has one of Europe’s fastest dropping populations. Despite similar overall trends, Spain has a stronger demographic base than Portugal due to immigration. According to the United Nations, the Portuguese net migration rate has been negative since 2011 and the country has not profited from any immigration boom, although Spain ranked second in the top-10 world nations with the highest levels of net migration between 2000 and 2010. Furthermore, following a period of negative net migration rates from 2011 to 2015, Spain has returned to positive population inflows. The impact of this phenomena is depicted in Figure 2.
Although both countries’ populations of persons over 65 are increasing at the same rate, net migration has helped Spain replenish its demographic base with young people, which has had an impact on the overall ageing rate, as seen in Figure 3.
The demographic estimates for both countries are unfavorable, according to the European Commission, but the Portuguese situation is significantly worse. Figure 4 depicts how current net migration levels are unlikely to prevent Portugal from contracting. In the mid-term, the country will either need to attract and keep new people, which means new workers, or boost its birth rate or learn to live with a declining population to ensure sustainable growth. A difficult task.
Employment
Unlike the Portuguese, the Spanish economy has seen significant structural changes in the labor market over the last decade, fuelled by the 2000s immigration boom and an increasing female labor-force participation rate, which in 2013 nearly reached Portuguese levels. That accounted for the dramatic difference in the active population illustrated in Figure 5, which increased by 40% in Spain between 1997 and 2008, compared to only 10% in Portugal.
Despite its population growth, Spain generated 45 percent of the additional employment that existed in 1997 during the expansion phase of its economy, whilst Portugal only had a 10% gain. Figure 5 shows how the Spanish and Portuguese employment rates eventually converged, from a 15-percentage-point differential to less than 5 points. The Great Recession rapidly reversed this tendency in both nations, most notably in Spain, as a result of the bursting of its massive real-estate bubble, which did not occur in Portugal. The gap between the two countries has remained constant after a rapid decline.
The number of employed people, as well as employment and unemployment rates (Figure 6) give a decent overall picture of the individual labor markets. The structural structure of Spain’s higher unemployment rates, as well as its deeper and longer decrease in overall employment during the crisis, are important features. Both countries expanded steadily during the recovery, with Portugal having a particularly strong year in 2017.
A sectoral study is required to better comprehend the variations in labor markets between the two countries. Figure 7 depicts the sharp reduction in manufacturing and building in Spain during the crisis, which coincided with the bursting of the real-estate bubble. However, as mentioned in the introduction to this paper, the growth of hours worked in wholesale and retail trade, transportation, accommodation, and food service activities, all of which are directly related to tourism, is the key factor that explains the extraordinary evolution of employment indicators in Portugal. In 2017, the Portuguese figures skyrocketed, contrasted to Spain’s more modest development. This also explains why the Algarve, which is primarily a tourist destination, has decisively surpassed central Portugal in terms of job growth (as shown in Figure 8). Furthermore, the increase is mostly due to the female labor force.
Another important structural distinction between the Portuguese and Spanish labor markets is the regional setup, which should not be overlooked. Portugal has a uniform labor distribution across its territory, with identical rates of male and female employment in each region. In Spain, on the other hand, regional differences are stark. Figure 8 compares employment rates in Madrid and Andalusia, Spain, to the Algarve and northern Portugal, on the one hand, and the Algarve and northern Portugal, on the other. The substantial increase in female employment rates in the Algarve tourist region is worth noting once more.
In summary, tourist destinations and increased female engagement helped to continue the sharp increase in Portuguese employment and activity rate in 2017. Nonetheless, this significant employment increase (3.3%) was only partially reflected in overall GDP (2.7%), implying a poor apparent labor productivity (Figure 9). This means that, despite wage restraint, Portugal’s unit labor costs are rising, potentially resulting in a progressive loss of competitiveness, at least in comparison to Spain and other members of the common currency area. The results also show the unusual nature of the country’s employment stats in 2017, as the European Commission noted in its 2018 and 2019 estimates.
GDP and growth
In 2017, the eurozone grew at its best pace in a decade, with a 2.3 percent increase in gross domestic product. In this regard, both Spain and Portugal stood out. For the third year in a row, Spanish GDP growth was higher than the euro area average, at 3.1 percent. As previously stated, Portuguese economic growth increased to 2.7 percent in 2017. Nonetheless, both economies are significantly different in terms of size and structure.
According to the most recent FMI estimates, Spain is the world’s 15th largest economy (in PPP values), with Portugal ranking 55th. The margin is narrower in terms of per capita GDP (PPP), with Spain placing 32nd and its neighbor 43rd. In terms of comparisons other than GDP, Spain and Portugal are ranked 27th and 41st, respectively, on the Human Development Index. Figure 10 depicts the progression of the main growth indicators through time, highlighting the Spanish boom of the 2000s as well as the deeper impact of the country’s crisis. Following the recovery, both countries are surpassing predictions by increasing over their potential GDPs.
Figure 11 shows how the differences in GDP growth and contributions in each country may be better compared. Private consumption, net investment, and strong exports have been the key drivers of the Spanish economic growth model in recent years, with the public sector playing an important role as well. Portugal’s economy is less diverse, which the new progressive government hopes to change with a realistic approach. In fact, it has implemented many of the conservative predecessor’s economic policies, launching an aggressive National Reform Program to create a more dynamic, investment-friendly economy that is already showing results. Domestic demand is strong (because to job creation, salary growth, and favorable financing circumstances), and tourism, as previously said, remains an important driver (accounting for 11 percent of Portuguese GDP and 8 percent of employment). Construction and equipment boomed, which boosted investment growth. The automobile industry’s recent capacity growth is expected to provide a more stable framework.
From 2008 through 2017, Figure 12 summarizes the cumulative growth in the active population, employment, and real GDP, as well as the corresponding growth in apparent labor productivity. The significant fall in Portugal’s active population has been a major factor in the country’s lower unemployment rate. Furthermore, Portugal’s overall growth in apparent labor productivity was substantially lower than Spain’s. Both variables (lower active population growth and lower productivity) will be negative for Portugal in the medium run, even if they appear to favor a reduction in the jobless rate in the short term.
Finally, despite its outstanding successes, Portugal’s economic development has lagged behind that of Spain in the last two years, as illustrated in Figure 13.
Wage, salaries and productivity
The significant changes made in the Portuguese public sector as a result of the reforming agenda that accompanied the country’s bailout should be mentioned at this point. A significant reduction in public administration staff numbers was achieved, including by early retirement and mutually agreed-upon contract termination, and other attempts by the government to reduce public-sector wages were mostly ruled unconstitutional. Figure 14 depicts these changes in the public sector. Wages are expected to rise gradually in 2018-19, coupled with the unfreezing of public-sector career advancement.
There is a considerable gap in productivity between Portugal and both Spain and the euro area average, as seen in Figure 15. When comparing Portuguese output to that of the rest of the EU, which has been steadily dropping since 2013, the pattern is even obvious. Portugal’s productivity growth is slowing faster than that of advanced economies. In recent years, greater and deeper integration of the Portuguese economy in global markets was expected to lead to productivity convergence, but this has not happened. Ricardo Pinheiro Alves of the Portuguese Ministry of Economy’s Gabinete de Estratgia e Estudos says that the rising misallocation of capital, labor, and skills at the sectoral and corporate levels is the root of the productivity problem. We also feel that the quick growth in tourism-related employment, as well as the relative importance of agriculture in Portugal, contribute to the bad results.
Spanish output, on the other hand, has risen continuously during the recession. The majority of the adjustment occurred between 2008 and 2011, but since then, two things have contributed to productivity growth: (1) a robust rebound in exports with fair product diversification; and (2) the impacts of labor market reform. On the other hand, there are still factors holding back productivity growth: an overreliance on temporary workers (much more so in Spain than in Portugal); persistent wage rigidities; a high concentration of export firms, resulting in a lack of competition; and the small size (and thus low productivity) of Spanish companies, which account for a large share of employment and output. The latter is a Portuguese characteristic as well.
Trade
Spain is ranked 16th in the world for merchandise exporters and 11th in commercial services, according to the World Trade Statistical Review 2017, whereas Portugal is ranked 47th and 35th, respectively.
In recent years, both the Portuguese and Spanish foreign industries have grown in importance. Portuguese exports raised their proportion of GDP by 16 percentage points in nominal terms between 2005 and 2017, accounting for more than 40% of GDP. Exports, along with tourism, have been critical in the Portuguese economy’s revival. Portugal’s reliance on European countries has declined from 80.3 percent of total goods exports in 2005 to 73 percent in 2017, indicating greater stability and diversification. Exports outside the EU grew from 19.7% in 2005 to 26.8% in 2017, with the United States being Portugal’s largest non-European trading partner. Former Portuguese colonies Brazil and Angola are also popular travel destinations. According to Caixabank Research, part of Portugal’s recent gain in trading volume can be explained by the country’s increased engagement in global production chains, with increased demand for Portuguese products in ASEAN countries, China, and India.
In the case of Spain, as detailed in Elcano Expert Comment 16/2018, the country’s exporting strength maintained in 2017, with sales of goods abroad increasing for the eighth year in a row and reaching a new high of 277.1 billion, over a quarter of GDP. Spain’s resurgence has been mostly fueled by external demand. Spanish exports are less reliant on EU partners than Portuguese exports (65.7 percent of the total). Increased geographical variety of exports has aided sales growth in relatively new countries like China and Turkey. Capital goods (20.3 percent of total exports, up 9.2 percent), food, beverages, and tobacco (16.5 percent and 6.3 percent, respectively), and the motor industry were the major export industries (16.3 percent and 0.1 percent ). Spanish exports are likely to rise rapidly in 2018 and 2019, as the country continues to gain market share despite the euro’s forecast strengthening.
When it comes to bilateral commerce, Spain has increased its proportion of Portuguese imports (from 27% in 2012 to 33% in 2016), while Portugal’s part of the Spanish market has stayed relatively consistent at approximately 3.9 percent to 4%. According to the most recent official statistics, Spanish exports to Portugal increased by 10.1 percent (19.844 million) year over year between January and December 2017. Spanish imports from Portugal totaled 11.001 million, up 0.9 percent year over year.
Debt and deficit
High gross public debt-to-GDP ratios were one of Portugal’s main economic problems during the crisis, but after falling by 4.2 percentage points to 125.7 percent in 2017, they are expected to fall even further to 122.5 percent in 2018 and 119.5 percent in 2019, owing to fiscal reforms and economic growth (Figure 17). The Spanish public-debt ratio, on the other hand, has recently stabilized at roughly 100% of GDP and is also decreasing.
In terms of private debt, Portugal still has a high rate of bad loans in the banking system (16.7 percent, compared to 4.8 percent in Spain) and a large amount of consolidated private debt (163.5 percent , compared with 139.2 percent in Spain, according to Eurostat). Portugal is still more sensitive to macroeconomic downturns than its neighbor in this sense. It’s worth noting that both countries have benefited considerably from the European Central Bank’s monetary policy’s favorable financing conditions in recent years.
Net international investment position
In this area, the two countries have comparable trends, yet there is still a major gap between them. Portugal owes the rest of the world more than Spain. Both countries’ net foreign assets have declined since the euro was introduced, but Spain has finally managed to reduce its large current-account deficit to a greater extent than Portugal, and has recently shifted to external surpluses, which has been enough to stabilize and gradually reduce its net external indebtedness. Portugal’s recovery appears to be lagging in this area.
What makes Portugal so more poorer than Spain?
This lockdown has allowed me to reread one of my favorite books, Christopher Koch’s The Year of Living Dangerously. I recall buying it in an old-fashioned bookstore on Fleet Street in the 1980s, back when the internet was still a thing “The “Street of Shame” remained the nerve center of the British newspaper industry. The novel, which was later adapted into a film starring Mel Gibson, follows a young Australian foreign correspondent as he attempts to expose a communist scheme to seize control of Indonesia in the mid-1960s.
The novel, like the picture, is full of atmosphere and excellent dialogue. A well-educated young communist fan asks the interviewer in one particularly famous exchange: “Is it possible that I’m a moron? Why should I live like a pauper for the rest of my life when dumb people in your country live comfortably?” It is undoubtedly a question that many hardworking, clever Portuguese, who receive low salaries in comparison to their colleagues in other European countries, ponder on a daily basis.
For the record, in 2019, the average monthly wage in Portugal was 1,180, compared to about 4,000 in Germany. Many Portuguese earn significantly less and struggle to make ends meet on the monthly minimum wage of 741, which is less than half of what Germany (1,584), the United Kingdom (1,600), and the Netherlands (1,636) receive.
Furthermore, living in Portugal is not inexpensive. Housing, electricity, food, and numerous electrical products are all comparable to, if not higher than, those in other European countries. As a result, many families’ lives are extremely difficult.
What gives that this is the case? The fundamental cause is Portugal’s low productivity, which is a key driver of economic growth. Productivity simply counts the amount of output produced per worker, and countries with high productivity are plainly more efficient at creating things than countries with low productivity, allowing them to pay greater wages and salaries. Germany and the United States are among the most productive countries in the world; the average German or American worker is more than twice as productive as a Portuguese worker.
Productivity is influenced by a number of factors, including the adoption of new technology and business processes, the level of skills in the workforce, and the amount to which the corporate environment stimulates entrepreneurial activity and investment.
Is Portugal considered a first-world country?
Any list of NATO members would have included NATO members the United States, the United Kingdom, France, Australia, Belgium, Canada, Denmark, Greece, Iceland, Italy, Luxembourg, Netherlands, Norway, Portugal, Turkey, and West Germany under the original Cold War-era understanding of the term. Many historians would have included non-NATO allies such as Australia, Iran, Iraq, Israel, Japan (perhaps surprisingly, given the country’s role in WWII as an Axis ally), New Zealand, Pakistan, Philippines, South Korea, Spain, and Thailand, as well as neutral but Western-aligned Austria, Ireland, and Sweden. However, keep in mind that such lists would be historical in nature and would not be useful today.
What is a reasonable wage in Portugal?
In Portugal, having a university degree guaranteed a higher wage. According to the most recent information supplied by Pordata, the average monthly base compensation of a high-level executive in 2019 was 2,104.3 euros, far above the national average (1,005.1 euros). On the other hand, a mid-level executive receives an average monthly base income of 1,484.6 euros. The average base wage for a non-qualified professional is 646.7 euros, the lowest of the three.
What is Europe’s poorest country?
**The transcontinental countries of Azerbaijan ($4,214) and Armenia ($4,268) would feature on the above list if they were counted as European countries rather than Asian countries.
Ukraine
Ukraine is the poorest country in Europe as of 2020, with a per capita GNI of $3,540. Ukraine was once the USSR’s second-largest economy. When the USSR fell apart, Ukraine struggled to adapt to a market economy, leaving a large portion of the population in poverty. Government corruption, Russian aggression (particularly, Russia’s unlawful invasion of Crimea in 2014), and a lack of infrastructure are all factors contributing to Ukraine’s poverty.
Georgia
Georgia’s GDP per capita in 2020 was $4,290, which was lower than any other European country save Ukraine. This former Soviet republic, which is located between Russia, Turkey, Armenia, and the Black Sea, is going through some difficult times. Its future, on the other hand, appears to be promising. Georgia’s economy and Human Development Index (HDI) score are both improving as a result of changes such as significant financial reforms, reduced corruption, and significant government investment in education.
Kosovo
Kosovo had a per capita GNI of $4,440 in 2020, making it the third poorest country in Europe, assuming it is a sovereign country and not an independent Serbian territory for the sake of discussion. Kosovo is a semi-autonomous province of Serbia that declared independence in 2008. Around 550,000 people live in poverty in Kosovo, which means that 30 percent of the population earns less than the poverty threshold. Furthermore, Kosovo’s unemployment rate is extraordinarily high, at 34.8 percent as of 2016, with the majority of households earning less than 500 Euros per month.
Moldova
Moldova, with a GNI per capita of $4,570 in 2020, is one of Europe’s poorest countries. Following the dissolution of the Soviet Union in 1991, Moldova endured political instability, economic decline, trade barriers, and other problems. Lack of large-scale industrialization, food insecurity, economic collapse during the transition to a market economy, and social policy blunders, among other things, all contribute to poverty in the country. Despite its recent difficulties, Moldova is improving, with the percentage of the people living in poverty falling from 30.2 percent to 9.6 percent between 2006 and 2015.
Albania
Albania’s Gross National Income (GNI) per capita is $5,210. Albania transitioned from a socialist to a capitalist market economy following the dissolution of the Soviet Union in the 1990s. Despite being Europe’s fifth poorest country, its economy is steadily growing. Albania’s vast natural resources, such as oil, natural gas, and minerals such as iron, coal, and limestone, are largely responsible for this.
North Macedonia
North Macedonia is Europe’s sixth poorest country. North Macedonia suffered major economic transformation after winning independence in 1991, and its economy has progressively improved. Around 90% of the country’s GDP is derived from trade. Despite the government’s successful implementation of programs, North Macedonia still has a high unemployment rate of 16.6%. The unemployment rate reached 38.7% at its peak. In 2020, North Macedonia’s per capita GNI was $5,720.
Bosnia and Herzegovina
Bosnia and Herzegovina’s GNI per capita in 2020 was $6,090. The country is currently recovering from its own war for independence from Yugoslavia, which lasted from early 1992 until December 1995. The conflict, as well as the ethnic cleansing that accompanied it, caused devastation on the people, infrastructure, and economy of the country. When the battle stopped, there were so many casualties that one out of every four houses was headed by a woman. Women make up a smaller percentage of the workforce in Bosnia and Herzegovina, and they are generally paid less than men, putting many families at a disadvantage. As a result, many families were forced to live in poverty.
Belarus
Following the dissolution of the Soviet Union, Belarus, like other former Soviet republics, had economic difficulties. Belarus had a strong economy and one of the highest living standards among Soviet republics in previous years. Belarus suffered economic difficulties over the next few years, until 1996, when it began to recover. Belarus’s spending among the bottom 40% of the population climbed between 2006 and 2011, when many nations in Europe were feeling the consequences of the recession. The country’s per capita GNI is expected to be $6,330 in 2020.
Serbia
Serbia’s per capita GDP is expected to be $7,400 in 2020. Serbia had eight years of economic expansion at the start of the 2000s, until the worldwide recession in 2008. Serbia’s economy entered a recession in 2009, resulting in negative growth rates of -3 percent in 2009 and -1.5 percent in 2012, pushing the country’s public debt to 63.8 percent of GDP. Around a quarter of the Serbian population is poor. Food and energy production, on the other hand, are thriving, and Serbia’s economic situation is improving.
Montenegro
The Gross National Income (GNI) per capita in Montenegro is $7,900. Montenegro’s economy is modest and mainly reliant on the oil sector. The country’s natural resources have been depleted as a result of urbanization and deforestation, making it vulnerable to resource depletion. Furthermore, discrimination based on gender and age results in significant economic disparities, notably for women. Approximately 50,000 people have been internally displaced or are refugees. They are among the poorest people in the country, with a poverty rate almost six times higher than the national average of 8.6%.