Financial services and tourism will drive Portugal’s economy to 2030

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Portugal has improved its competitiveness and macroeconomic stability, according to The Economist Intelligence Unit.

According to Irene Mia, its global editorial director, Portugal’s return to growth has boosted market opportunities while structural reforms have improved the efficiencies of its factors markets, including the labour.

There is less bureaucracy and the country has good quality infrastructure and primary education.

However, the effectiveness and stability of Portugal’s political system effectiveness needs improvement. “The current political setting, with a minority administration, is more prone to disruptive policy changes. Furthermore, despite a stronger fiscal position (with a lessening of the sovereign debt load) and better GDP growth, the country remains vulnerable to market turbulences and the banking sector continues to be affected by numerous weaknesses,” she says.

And if Portugal is to be able to sustain long-term growth, innovation will be increasingly important. “Reinforcing the ecosystem for that will be key, including putting in place a conducive education and training system, generating synergies between universities and industry, investing in R&D, and making market efficiencies at all levels.”

According to the Economist’s Business Environment Ranking, which assesses countries’ attractiveness for investors, Portugal ranks 15 out of 18, which means more progress is needed in terms of relative competitiveness compared to its regional peers.

“Portugal benefits from a stable political environment, although polls show that any shift away from austerity could worry investors. The country retains business friendly policies for private enterprises, competition, and foreign investment. The macroeconomic environment needs to remain a focus, as does the labour market and foreign trade and exchange controls. On top of this, the size of the market is relatively small. A focus on reinforcing these elements and ensuring that the fundamentals for long-term growth are in place will be crucial for attracting and sustaining FDI.

Portuguese Finance Minister Mário Centeno’s appointment as head of the Eurogroup means that Portugal is increasing its influence within the EU. Hopefully Portugal will continue to reinforce the EU’s institutional underpinning and play a key role in the current push for further integration of the economic and monetary union. Portugal’s economic success, diverse culture and current boom in tourism should boost its soft power in years to come.

Mia said that Portugal’s economy is dominated by service sectors, over 75% of its economy. Financial services and tourism are among the most important sectors for the country’s growth. The outlook for financial services should partially improve on the back of moves toward shared regulatory structures in the euro zone.

“The boom currently experienced by the tourism sector, boosted by price competitiveness and security concerns in some competing destinations, could continue provided investment is made to improve tourism infrastructure.  However, overreliance on income from key tourism supply countries without diversifying into new markets was ill-advised.

However, Portuguese industry had been struggling recently with low competitiveness and domestic demand. “However, the resulting shift from traditional low-cost activities to medium technology sectors, such as vehicles and automotive parts, and pharmaceuticals, among others, is positive, making Portugal more competitive. Now there needs to be more innovation and technology readiness.