The economic upturn following social measures
Portugal was hit hard by the eurozone debt crisis in 2010. This was followed by several difficult years and a foreign debt estimated at 100% of GDP. To support it, Portugal received aid from the European and international monetary funds in 2011, accepting in return a deficit reduction plan imposed by the European Commission for the following years. The government undertakes austerity measures, freezing the minimum wage and retirement pensions, thereby reducing purchasing power, raising taxes and cutting public subsidies. Job insecurity and poverty are on the rise. Unemployment reached a staggering 14% in 2014!
In 2016, the European Commission launched an excessive deficit procedure, which was quickly abandoned a few months later. The Socialist government in power achieved the feat of showing that a country can recover by adopting stimulus measures rather than austerity measures. Portugal had chosen to target household purchasing power through increases in the minimum wage (in exchange for lower contributions for employers) and pensions, accompanied by social measures such as a program to combat job insecurity. As a result, in just two years the country has been able to recover thanks to this policy of recovery and a revitalization of tourism with the emergence of high-end real estate projects.
On January 24, 2021, President Marcelo Rebelo de Sousa, a moderate conservative, was widely re-elected in the first round (over 60% of the vote), despite a low turnout (39.3%). This was partly due to the fact that the country was once again under lockdown for ten days. However, turnout increased for the legislative elections (58%) held on January 30, 2022, when Portugal was experiencing the peak of the5th wave of the pandemic.
Although the government felt strengthened by these elections, a corruption scandal involving the Socialist Prime Minister Antonio Costa changed all that at the end of 2023. Costa resigned and the President chose to dissolve the government. The center-right opposition slightly won the early parliamentary elections of March 10, 2024, with 28.8% (80 seats in Parliament), against 78 seats for the Socialist Party. The new Prime Minister, Luís Montenegro, took office on April 2. The new government will also have to deal with the rise of the extreme right, which won 18.1% of the vote, or 50 of the 230 seats in the Assembly.
Portuguese exports
With the most important park of cork oaks in Europe, Portugal is the first exporter of this precious resource used for wine bottle stoppers, but also objects of all kinds. In addition to this, the country continues to trade in sardines, tuna and cod (despite the fact that the water is less rich in fish) and has good resources in iron, copper, zinc, tin, silver, gold, salt, clay and hydrocarbons.
In recent years, there has been a revival of export-oriented industries. This is the case of the automobile, textile and shoe industries, which were thought to have disappeared. 80% of trade is with European countries. Portugal is witnessing a return of certain industrialists who had chosen to settle in Eastern European countries because of the very low cost of labor. These companies are now seeking to offer their employees a better quality of work, in addition to lower wage costs.
Foreign investors are taking Portugal by storm
The Chinese have taken advantage of the crisis in Portugal to invest with their long-standing trading partner. Let's not forget that the two countries have had a bilateral relationship for five centuries, following Portugal's presence in Macau in 1557. The handover to Beijing in 1999 went off without a hitch. In the 2010s, Chinese capital made a major contribution to the development of the economy, in electricity, insurance and vineyards. They have invested 10 billion or 3% of GDP. In July 2019, negotiations opened for the concession of a new container terminal in the port of Sines, the 40th largest port in the world, located 100 km south of Lisbon. This contract opens up a new trade route for China.
Italian insurer Generalia has announced an agreement to buy two insurance companies in Portugal, Seguradoras Unidas and Advance Care, making it the third most powerful insurer in the country.
The automotive industry has been revitalized. In mid-2020, a direct daily link was to be set up between Portugal and Germany, to enable the transport of automotive components to and from Volkswagen's Autoeuropa assembly plant in Portugal. With the coronavirus crisis, the project has been slowed down. The convoy, christened Vasco da Gama, should also serve France, Belgium and the Netherlands.
The strength of tourism
A safe country with the highest rate of sunshine in Europe, a relatively low cost of living, mild temperatures, a long summer and swimming almost all year round. These are just some of the attractions that attract tourists to Portugal, whatever the season. On site, they discover castles, churches and monasteries dating back centuries, preserved witnesses to the country's rich history, as they walk along ancient Roman roads. Tourism plays an important role in Portugal's economy. It accounted for 15% of GDP in 2022. However, the health crisis of 2020 was devastating for the country.
At the World Travel Awards (the Oscars of tourism), Porto was voted "1st Tourist City" in 2017, in recognition of its growing dynamism.
In 2019, a record 21 million foreign tourists visited Portugal! Low-cost flights have greatly facilitated their arrival. In France alone, more than 600 planes take off every week for Portugal (Porto, Lisbon or Faro) from 20 French airports.
Aware of the impact of tourism on its economy, the government has authorized the construction of luxury hotel infrastructures. Since Pope Francis' visit to the Fátima sanctuary in June 2017, religious tourism has risen sharply. Fátima is one of Europe's largest pilgrimages. All these factors combined have led to the creation of numerous jobs in the tourism sector. However, due to the health crisis, tourism revenues in 2020 were divided by three, only to rise again slightly in 2021. 2022 saw the return of tourists, and the tourism sector posted record profits of 22 billion euros. Portuguese hotels welcomed 15.3 million foreign visitors, mainly from Europe, but the strongest growth was recorded among Americans and Brazilians. Portugal was the big winner at the 2022 World Travel Awards, with 12 awards. Porto was named "World's Best Urban Destination 2022". The year 2023 holds even more fabulous tourism data, becoming the "best year ever for tourism in Portugal".
Portugal has a lot going for it. With its beaches and ocean tubes, surfers have made the country one of the world's top destinations for riding the highest waves. It's also a stable, peaceful country with many friends, 300 days of sunshine a year and an advantageous tax system, albeit modified in 2022. Many of Europe's retirees buy a second home in this wonderful country, or settle here permanently.
RNH status and tax reductions
On January1, 2013, the RNH (Non-Habitual Resident) status came into effect in Portugal, with a simple objective: to offer tax benefits to foreigners (retired or professionals with a high value-added activity). The objective for the country is to attract foreign capital. Changes were made in 2022 regarding taxes and taxation but the RNH status is still available provided that you spend 183 days in the country. All applications for RNH status made before March 31, 2021 allow their retired beneficiaries to benefit from a complete exemption from income tax in France and Portugal for 10 years. Thereafter, the beneficiary is subject to the progressive tax regime in force in Portugal. The tax rate is set at 20% for those who benefit from this RNH status through their profession.
For applications for RNH status made after March 31, 2021, the income tax is fixed at 10% for 10 years. Thereafter, the beneficiary is subject to the progressive tax regime in force in Portugal.
For professionals with value-added activities, nothing changes, with taxation set at 20%.
