Return to: Index of "1994 Country Reports on Economic Practice and Trade Reports" ||
Index of "Economic and Business Issues" || Electronic Research Collections Index || ERC Homepage



                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)

                                    1992      1993 1/   1994 2/

Income, Production and Employment:

Real GDP (1989 prices) 3/         65,178    54,173    54,030
Real GDP Growth (pct.)               1.1      -1.0       1.1
GDP (at current prices)           96,129    85,107    88,494
By Sector: (pct.)
  Agriculture                      5,190     4,340     4,160
  Energy/Water                     3,749     3,404     3,717
  Manufacturing                   25,089    21,104    21,687
  Construction                     5,191     4,595     4,868
  Services (net)                  56,910    51,664    54,062
Net Exports of Goods,
  Services and Transfers 4/          -20       693      -500
Real Per Capita GDP (USD)          6,974     5,794     5,779
Labor Force (000s)                 4,528     4,504     4,541
Unemployment Rate (pct.)             4.1       5.5       6.7

Money and Prices:  (annual percentage growth)

Money Supply (M2)                   16.1       7.6       5.0
Base Interest Rate 5/               16.0      11.0       9.0
Personal Savings Rate 6/            10.9       8.1       8.8
Retail Inflation 7/                  8.9       6.5       5.3
Consumer Price Index 7/            108.9     116.0     122.1
Exchange Rate (USD/PTE)            135.0     160.8     163.0

Balance of Payments and Trade:

Merchandise Exports (FOB) 4/      18,275    16,699    18,000
  Exports to U.S.                    590       679       750
Merchandise Imports (CIF) 4/      27,675    23,663    24,500
  Imports from U.S.                  916       745       800
Aid from Other Countries           4,129     3,851     3,712
External Public Debt              19,098    19,721    19,500
Debt Service Payments              4,920     5,001     4,500
Gold and Foreign Exch. Reserves   24,335    21,005    21,000
Trade Balance                     -9,400    -6,964    -6,500
  Trade Balance with U.S.           -326       -66       -50

1/ Estimated.
2/ Projected.
3/ GDP at market prices.
4/ As of 1/1/93 on a cash basis.
5/ 91-day Treasury Bills -- primary market.
6/ On new national accounts basis (1986 base).
7/ New Series: 1991 = 100.

1.  General Policy Framework

    The government's economic goal is to modernize Portuguese
markets, industry, infrastructure, and workforce in order to
match the productivity and income levels of its more advanced
European Union (EU) partners.  Portuguese per capita GDP (on a
purchasing power parity basis) reached 64.5 percent of the EU
average by the end of 1993.

    The government's medium-term objective is to be in the
first tier of EU countries eligible to join the Economic and
Monetary Union (EMU) as early as 1997.  To be eligible,
Portugal must reduce inflation, budget deficits, public debt,
and interest rates in line with convergence criteria set by the
European Commission.  The current policy mix to meet these
criteria includes modestly stricter fiscal policy; continued
tight monetary policy in defense of a broadly stable exchange
rate; conservative incomes policies to support the disinflation
process; and privatization and trade policies to increase the
efficiency and productivity of the economy.

    An unexpectedly severe recession, significant fiscal
slippage, and turmoil in the EU exchange rate mechanism
undermined Portugal's EU convergence strategy in 1993.  Faced
with higher unemployment, a markedly weaker government fiscal
position, and dimmer growth prospects than originally
anticipated, financial markets repeatedly tested the
government's commitment to disinflation in 1994.  In response,
the government consistently reaffirmed its commitment to
exchange rate stability.  As a result, inflation is much
reduced, interest rates have come down, and the economy appears
headed for recovery of 1.1 percent in 1994 and 3 percent in

    Prime Minister Cavaco Silva and the Social Democratic Party
(PSD) face parliamentary elections in 1995.  Some observers
believe the Prime Minister remains committed to the discipline
of EU convergence despite domestic political pressures to boost
the economy in an election year.  They point out that the
government has thus far resisted union demands for a 5 percent
minimum wage increase as part of a one-year social pact and is
letting financial markets set a cautious pace for interest rate
reductions even at the cost of slower growth and higher
unemployment in the short-term.  In addition, they say the
government is aware that the European Commission is linking
disbursement of politically-important EU cohesion funds to
demonstrated progress on meeting EU convergence criteria. 
Other observers believe electoral considerations are already
evident.  They point out that government is not planning to cut
the FY-1995 budget deficit as much as might be expected and is
conceding to pressure groups such as local bankers and small
merchants.  Furthermore, they say accelerated declines in
interest rates and a generous off-cycle salary boost cannot be
counted out as electoral concerns build.

2.  Exchange Rate Policy

    Portugal participates with Belgium, Denmark, France,
Germany, Ireland, Luxembourg, the Netherlands, and Spain in the
exchange rate and intervention mechanism (ERM) of the European
Monetary system (EMS).  In accordance with this agreement,
Portugal maintains the spot exchange rates between the
Portuguese escudo and the currencies of the other participants
within margins of 15 percent above or below the cross rates
based on the central rates expressed in European Currency Units
(ECUs). The wider 15 percent band replaced a 6 percent band in
August 1993.

    Portuguese authorities continue to maintain a stable
exchange rate to anchor wage and price expectations.  The
authorities have thus far not used the wider 15 percent margins
to ease policy, but rather have reacted to bouts of exchange
rate pressure by raising interest rates and intervening in the
market.  In particular, since August 1993, the authorities have
kept the escudo well within the old 6 percent band against the
deutsche mark, at approximately PTE 102/DM.  The government
believes the general upward trend in Portugal's export market
shares in recent years indicates the exchange rate continues to
be consistent with maintaining international competitiveness. 

3.  Structural Policies

    The Portuguese Government continues to liberalize the
economy to stimulate growth and convergence with EU standards. 
EU assistance programs designed to facilitate structural
adjustment in Portuguese agriculture, industry, commerce, and
regional development will approach 4 percent of GDP in 1994. 
EU transfers are expected to increase by 8 percent per year
during 1994 to 1999.  Since the Portuguese government must
provide significant counterpart funding of EU transfers, the
structure of government spending is expected to shift markedly
away from current spending to make room for rising public

    In the labor market, the sharp slowdown in nominal wage
settlements has supported the disinflation effort.  More
broadly, the government is investing in worker training
programs to enhance the quality and mobility of the workforce
and improve its productivity.

    The government's privatization program slowed in 1993 after
advancing rapidly in 1992.  The government took in revenues of
only 400 million dollars in nine privatizations in 1993.  The
pace picked up in 1994, however, with six privatizations
yielding over 700 million dollars in revenues through August. 
By year-end 1994, "denationalization" of the banking and
insurance sector will be virtually complete, and major
non-financial state-owned enterprises (including energy and
telecommunications) will be partially or wholly privatized. 
The government normally sets maximum foreign ownership
percentages on a case-by-case basis and may retain a
substantial voice in management of selected firms.

4.  Debt Management Policies

    Total external debt stood at $19.7 billion at the end of
1993, or equal to about 23 percent of GDP.  As recently as
1989, external debt represented almost 40 percent of GDP. 
Portugal's debt is well structured and can be comfortably 
serviced.  Large international reserves, and the ability to tap
international financial markets on favorable terms, will enable
Portugal to manage balance of payments pressures and maintain
financial stability as the economy recovers and imports for
investment revive.  Portugal is an aid donor nation and closely
follows development issues in its former African colonies. 
Portugal's aid as a proportion of GDP exceeds the average for
the OECD Development Assistance Committee.

5.  Significant Barriers to U.S. Exports

    As of January 1, 1993, all barriers to trade, capital flows
and labor mobility between Portugal and its EU partners were
eliminated.  Most barriers to U.S. exports, therefore, are
common to all EU member states.

    Policymakers see foreign investment as a crucial pillar in
building a more competitive economy.  The government offers a
very generous package of incentives to investors, including 100
percent foreign-owned subsidiaries.  The package of incentives
can range from 25 to 35 percent of the total investment. 
However, the government restricts or excludes private and
foreign participation in some sectors, including sewage
treatment, postal, transportation and water.  

    Portugal follows EU directives for standards, testing,
labeling, and certification.  The Portuguese Quality Institute
establishes national standards and implements EU directives. 
Portugal has already adopted most EU directives into Portuguese
law.  The Portuguese Telecommunications Institute sets
standards for telecommunication products, and the National
Laboratory Civil Engineering sets Construction Standards.  

    Low voltage electrical and electronic equipment must meet
the requirements of EC directive 73/23/EEC.  Imported textiles,
apparel, and leather goods must carry a label indicating
country of origin and composition by percentage of the fabric.

    Government procurement legislation makes no distinction as
to country of origin.  In July 1993, the GATT accepted
Portugal's list of entities covered by the Government
Procurement Code.

    Quantitative import restrictions remain for the following
products:  automobiles, fabrics and nets, fuses, parts of
footwear, iron and steel tubes and pipes, and weaving machines
for certain countries.  Textiles are covered by the Multi-Fiber
Arrangement (MFA) and protected by EU-wide quotas that will be
phased out under the Uruguay Round over 10 years.

6.  Export Subsidies Program

    Portugal has no programs designed to directly subsidize its
exports.  However, EU grants to modernize Portuguese industry
and agriculture may indirectly subsidize Portuguese exports. 
Also, government support to public firms, primarily designed to
make them more attractive for eventual privatizations, may be
considered an indirect subsidy. 

7.  Protection of U.S. Intellectual Property

    On October 20, 1994, Decree Law 252/94, which transposes
the EU software law, entered into effect in Portugal.  This law
explicitly offers copyright protection for computer programs
and stipulates stiff fines for software piracy.  The government
has undertaken great efforts to improve enforcement, but
small-scale copying occurs.  Business and software
organizations have taken a proactive role in the fight against
piracy.  Portugal is a member of the World Intellectual
Property Organization and is party to the Berne and Universal
Copyright Conventions and the Paris Industrial Property

    Trademarks are granted for 10 years and are renewable. 
Duration of copyright is life of the author plus 50 years. 
Computer programs are not explicitly protected under
copyright.  Enforcement action against unauthorized copying of
software and audio and video cassettes has become more common.

    Patents are granted for 15 years and are not renewable. 
Enforcement is sometimes weak, but enforcement agencies are
being strengthened.  In 1991, Portugal enacted patent
protection for chemical products, pharmaceuticals, and food
products.  Portugal's patent law also contains compulsory
license provisions for insufficient use.  

8.  Worker Rights

    a. The Right of Association

    Workers in both the private and public sectors have the
right to associate freely and to establish committees in the
workplace to defend their interests.  Unions may be established
by profession or industry.  Strikes are permitted for any
reason, including political causes.  They are common and are
generally resolved through direct negotiations between
management and the unions involved.  There are two principal
labor confederations.  The General Confederation of Portuguese
Workers Intersindical (CGTP-IN) is linked to the Communist
party.  The CGTP is in the process of joining the European
Trade Union Congress (ETUC); ratification of its membership is
now expected to occur in 1995. The General Union of Workers
(UGT) is a pluralist, democratic federation affiliated with the
International Confederation of Free Trade Unions and the ETUC.

    b.  The Right to Organize and Bargain Collectively

    Unions are free to organize without government or employer
interference.  Collective bargaining is guaranteed by the
constitution and practiced extensively in the public and
private sectors.  When collective bargaining disputes lead to
prolonged strike action in key sectors, the government is
empowered to order the workers back to work for a specific
period.  Under a modification of the strike law, a "minimal
level of service" must be provided during certain strikes,
including in the public health, energy, and transportation

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor does not exist.  This prohibition is enforced
by the General Labor Inspectorate.

    d.  Minimum Age for Employment of Children

    The minimum employment age is 15 years.  It will be raised
to 16 when the period for 9 years of compulsory schooling takes
effect on January 1, 1997.  The UGT and CGTP-IN have charged
that a number of "clandestine" companies in the textile, shoe,
and construction industries in northern Portugal exploit child
labor.  Despite improvements in the number of inspections
carried out by the General Labor Inspectorate, however, the
government does not allocate resources sufficient to fully
address the problem, which remains unresolved.

    e.  Acceptable Conditions of Work

    The national monthly minimum wage was last adjusted on
January 1, 1993, and is generally enforced but legally does not
apply to workers below the age of 18.  Current legislation
limits regular hours of work to 8 hours per day and 44 per
week, but the workweek will be reduced to 40 hours by 1995. 
Overtime is limited to two hours per day, up to 200 hours
annually.  Workers are guaranteed 30 days of paid annual
leave.  Employers are legally responsible for accidents at work
and are required to carry accident insurance.  Accidents
average between 70,000 and 75,000 per quarter.  These figures
have focused government attention on improving worker safety in
the construction sector.  There is also considerable concern
about the poor environmental controls in the textile industry.

    f.  Application of Worker Rights in Various Sectors

    Legally, worker rights apply equally to all sectors of the
economy.  As noted above, child labor and worker safety are
problems in the textile and construction sectors.

  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
              Category                          Amount          

Petroleum                                               (1)
Total Manufacturing                                     340
  Food & Kindred Products                   160
  Chemicals and Allied Products              93
  Metals, Primary & Fabricated              (1)
  Machinery, except Electrical                3
  Electric & Electronic Equipment            46
  Transportation Equipment                  (1)
  Other Manufacturing                        43
Wholesale Trade                                         266
Banking                                                 195
Finance/Insurance/Real Estate                           127
Services                                                145
Other Industries                                        (1)
TOTAL ALL INDUSTRIES                                  1,162    

(1) Suppressed to avoid disclosing data of individual companies

Source: U.S. Department of Commerce, Bureau of Economic


To the top of this page