The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.”
Executive Summary
Following an 8.4% contraction in GDP in 2020, Portugal bounced back strongly from the pandemic with the economy accelerating 4.9% in 2021 and 6.7% in 2022, partially due to the EU’s fiscal and monetary stimulus. The important tourism sector was also a big factor. U.S. tourists, for example, jumped to about 1.5 million in 2022, beating the pre-pandemic record of 1.2 million in 2019. As a result, the labor market continues to show remarkable resiliency, with unemployment at 6% in 2022, down from 6.6% in 2021. The Socialist Portuguese government has showed a strong commitment to reducing the fiscal debt and deficit, progressively improving its sovereign credit ratings.
The rosy post-pandemic economy was severely impacted by Russia’s aggression against Ukraine, causing a spike in energy and food costs that fed into inflation, running at 7.4% in March 2023. As the ECB raises interest rates and withdraws its loose monetary policy in response, Portuguese households are especially vulnerable, as about 80% of mortgages are variable rate. GDP expansion is expected to slow down to 1.3% in 2023 and labor strife has increased. Longer term, Portugal has also struggled with a chronic emigration of highly qualified workers for higher paying careers in Switzerland, France, the UK, Luxembourg and elsewhere. Combined with low fertility rates, Portugal would face a demographic collapse, without net immigration from Brazil and elsewhere.
As of 2022, the three top FDI sources were Spain (€25.7 billion), France (€17.2 billion) and the United Kingdom (€13.4 billion). The United States is an increasingly significant player, with an €8.2 billion FDI stock in 2022. Many U.S. companies have established business/service delivery centers in Portugal, taking advantage of Portugal’s relatively low-cost, talented, and multilingual labor force. Portugal’s tech startup scene is thriving, with firms tapping into the U.S. startup ecosystem for funding, knowhow, networks and customers, which ultimately produces new jobs on both sides of the Atlantic. However, Portugal also ranks second highest in terms of PRC investments in Europe (in relation to GDP), predominantly in premier Portuguese companies, which the PRC leverages to reach other markets in Europe, Latin America and Africa. New PRC investments are planned in electric batteries and other renewable energy areas. Nonetheless, there has been some recent progress in countering PRC influence in Portugal, from 5G to investment screening, as Portugal tries to align with EU directives.
While increased U.S. LNG supplies were crucial to mitigate supply shocks last year, Portugal has embarked on an unprecedented push into renewable energy and electric mobility, creating opportunities in everything from offshore wind and green hydrogen to lithium mining and refining and battery technology.
To access the full text of the 2023 ICS, visit the U.S. Department of State Investment Climate Statements website.