Portugal: country overview

10 July 2012
by Ina Dimireva -- last modified 10 July 2012

Portugal has become a diversified and increasingly service-based economy since joining the European Community - the EU's predecessor - in 1986. Over the past two decades, successive governments have privatized many state-controlled firms and liberalized key areas of the economy, including the financial and telecommunications sectors.

Portuguese flag

Year of EU entry: 1986

Member of Schengen area: Yes

Political system: Republic

Capital city: Lisbon

Total area: 92 072 km²

Population: 10.8 million

Currency: Euro

Listen to the official EU language: Portuguese

Map of Portugal

Country overview

Portugal, a country with a rich history of seafaring and discovery, looks out from the Iberian Peninsula onto the Atlantic Ocean. Portugal's history has had a lasting impact on the culture of the country: Moorish and Oriental influences in architecture and the arts are prominent.

Over the past 3 000 years, Portugal has witnessed a constant ebb and flow of civilisations. Phoenician, Greek, Celt, Carthaginian, Roman and Arabic cultures have all left their imprint. In the 15th century, Portugal's intrepid maritime explorers led by Vasco da Gama discovered new territories, leading to the accumulation of an overseas empire. At home, the university of Coimbra, established in 1290, is one of the oldest in Europe.

The President, elected for a five-year term by universal suffrage, has limited powers. The parliament has 230 members, whose mandate is for four years.

Portugal has always been well represented in the arts. Famous poets include Luís de Camões and Fernando Pessoa. No less creative are the talents of international footballer Cristiano Ronaldo.

Economy overview

The country qualified for the Economic and Monetary Union (EMU) in 1998 and began circulating the euro on 1 January 2002 along with 11 other EU members. The economy had grown by more than the EU average for much of the 1990s, but fell back in 2001-08, and contracted 2.5% in 2009, before growing 1.3% in 2010. But GDP fell again in 2011, as the government implemented austerity measures, including a 5% public salary cut, a 2% increase in the value-added tax, and an extraordinary tax on yearend bonuses to comply with conditions of an EU-IMF financial rescue package agreed to in May 2011. GDP per capita stands at roughly two-thirds of the EU-27 average. A rigid labor market has been an obstacle to greater productivity and growth. Portugal also has been increasingly overshadowed by lower-cost producers in Central Europe and Asia as a destination for foreign direct investment. Portugal's low competitiveness, low growth prospects, and high levels of public debt have made it vulnerable to bond market turbulence. The government reduced the budget deficit from 10.1% of GDP in 2009 to 4.5% in 2011, an achievement made possible only by the extraordinary revenues obtained from the one-time transfer of bank pension funds to the social security system. Investors, however, continue to express concern about the government's ability to achieve future budget deficit targets and obtain foreign financing to cover its sovereign debt obligations when the EU-IMF financing program expires in 2013. Without the option for stimulus measures, the government is focusing instead on boosting exports and implementing labor market and other structural reforms to try to raise GDP growth and increase Portugal's competitiveness - which, over time, may help mitigate investor concerns.