The IOE&IT Daily Update continues its election year-inspired survey of the world’s trading nations, this week profiling Portugal, which held parliamentary elections yesterday (10 March).
Election
Mirroring predictions for the upcoming EU parliamentary elections in June, Portugal’s vote has yielded a shift to the right. Far-right party Chega has grown significantly, quadrupling its representation to 48 seats and giving parliament’s right-leaning bloc a majority in the 230-seat assembly. Ahead of the vote, it was expected to play the role of kingmaker.
Leader of the centre-right Social Democratic Party (SDP), Luis Montenegro, has declared victory but is yet to confirm whether the party has a majority enabling them to govern without Chega’s support. Prior to the election, Montenegro stated he would not engage with the far-right party.
This shift to the right follows a severe loss of credibility among the previous government’s Portuguese Socialist Party, whose leader Santos stood down in November amid a corruption investigation which triggered the current election.
SPD also suffered a knock to its credibility ahead of the election, with two prominent officials standing down following a corruption investigation in the Madeira Islands.
However, Jose Santana Pereira, a professor of political science at the University Institute of Lisbon, told Al Jazeera that other lightning-rod issues can inspire a populist backlash at the ballot box:
“The Portuguese were very worried… about the increase in the cost of living resulting from inflation, as well as health, education and housing – areas that have consistently presented crises in recent times.”
These, he says, were the most significant factors prompting Portuguese voters to consider Chega, as corruption scandals have framed the centrist options as “two comparable pillars of a rotten system” for some.
Economic
Of the issues Pereira highlights, unaffordable housing has hit the headlines in recent years. The issue can be traced to the country’s post-crisis recovery strategy, aimed at attracting foreign investment.
‘Golden visas’ were granted to investors purchasing houses worth over €500,000, while digital nomad visas have incentivised wealthy professionals to work from the country, in turn creating a short-term rental market that further pushes out local residents.
This, combined with the country’s low average salaries, meant that many people were struggling even before inflation hit their pockets following Russia’s invasion of Ukraine and the rise in the price of energy.
Speaking to the Guardian, one woman said that after paying €700 in rent, she only has €230 left to cover the bills and provide for daughter, while many young people lament their inability to leave their family homes well into their 30s.
The macro-picture has looked brighter in recent months: last year, and for the first time since 2009, Portugal’s debt-to-GDP ratio fell below 100%, dropping to 98.7%.
The country’s caretaker finance minister, Fernando Medina, told Reuters that it could drop to 95% if the incoming government continues to focus on avoiding a deficit.
This led to international ratings agencies Moody’s and S&P Global upgrading Portugal’s credit score on global markets. However, this is unlikely to offer consolation to those struggling amid the rising cost of living.
Trade
Unsurprisingly, Portugal’s trade is predominantly intra-EU, and is largely with neighbouring Spain, France, Germany, Netherlands and Italy. However, the US is also a big recipient of its exports, buying $709m of goods and services in 2022.
Portuguese exports are dominated by cars, with the Observatory of Economic Complexity (OEC) reporting that overseas sales totalled US$4.4bn in 2022, making them the country’s largest export. In third place were motor vehicle parts and accessories, valued at just shy of $3bn.
The International Trade Administration writes that the sector accounts for 11% of Portuguese exports, and is made up of over 32,000 companies manufacturing car parts. It also has over 220 supplier companies across four global car manufacturers: Toyota, Volkswagen, Mitsubishi trucks and PSA Peugeot Citroën.
Government programmes, such as Interface and Industria 4.0, encourage continued investment in the sector.
Portugal also has some novel exports among its most traded items, as the world’s biggest exporter of agglomerated cork and natural cork articles – the kind you might pop to pour a glass of the country’s Vinho Verde red.
UK-Portugal trade
Trade between Portugal and the UK enjoyed a significant boost in the year preceding September 2023: figures from the Department for Business and Trade show that bilateral trade increased 17.8% to £12.2bn. This trade was driven mostly by UK imports from Portugal (£8.7bn), of which the majority was Portuguese services (£5.3bn) – an increase of 32.8% on the previous 12 months’ services imports.
UK exports to Portugal also rose by 16.5% to £3.5bn. This too was skewed towards the sale of services (57.7%) over goods (42.3%).
A significant difference emerged in the amount of investment between the two countries. The UK’s foreign direct investment in Portugal almost doubled over the 2022-23 period, to £8.2bn. Comparatively, investment from Portugal fell from £200m to £170m, a reduction of 15%.
Member exclusive
