In the last two decades, Portugal has experienced a growth cycle driven by exports. Exports systematically grew above GDP, leading to a structural change in the Portuguese economy, which became more open and competitive, both in exports and in attracting investment.
However, data from the last three years raises doubts about whether this cycle will continue. The year 2025 is expected to be the third consecutive year of a drop in the weight of exports and foreign investment in GDP. Does this mean that the export-based growth cycle of almost two decades has been interrupted? Or are we just facing a cyclical adjustment? What consequences does this evolution have for economic growth in the coming years? These are important topics that should be at the center of our concerns.
The idea of Portugal as a postponed country, in which nothing happens, contrasts greatly with the evolution of Portuguese exports over the last 20 years. In these two decades, Portugal’s exports tripled in value, rising from 43 thousand to 133 billion euros, achieving a growth rate that was double that recorded by GDP.
Between 2005 and 2022, Portuguese exports increased from 27.1% to 49.5% of GDP – see graph 1. It was a cycle, in which growth in Portugal was driven by the increase in export capacity, which broke with the previous decade and a half of stagnation in exports and GDP growth. The strong growth of exports and FDI in Portugal, in these years, occurred in contrast to the stagnation of globalization, which occurred in most OECD countries.
The jump in the weight of exports in GDP in these 17 years was greater than all the growth in the previous 50 years, which included the entry into EFTA and the EEC, the single market and the enlargement of the European Union. Unlike previous cycles of strengthening internationalization, which resulted from greater openness processes, which facilitated the access of Portuguese exports to European countries (entry into EFTA and the EEC), the strong increase in exports over the last two decades did not originate any improvement in access to markets, but rather a strengthening of the country’s competitiveness, particularly in new sectors.
In this last cycle, the increase in the weight of exports in GDP was also more diversified, including contributions from both goods and services – see graph 2. The increase of 22 percentage points was driven by both the increase in exports of goods (11.6 percentage points) and services (10.9 pp). In services, Tourism stood out (4.8pp), but the biggest contribution came from other services (6.1pp).
In both goods and services, the increase in exports was driven by a diverse set of sectors – see graph 3, in which new, more sophisticated industries and services, such as aeronautics, pharmaceuticals, precision instruments or IT services, made an important contribution, along with good growth in the agricultural and food sector and already consolidated sectors such as automobiles, machinery and tourism.
The evolution of exports allowed Portugal to once again grow more than EU countries, while achieving positive current account and capital balances in 12 of the last 13 years, after four decades in which external deficits dominated.
Increased attraction of Foreign Investment
The last two decades have also been very positive for Portugal in attracting Foreign Direct Investment (FDI). Unlike OECD countries, in our country, attracted FDI continued to grow – see graph 4. In attracting FDI, Portugal now appears above the EU average. This evolution caused the FDI Stock to increase from 39% to 75% of GDP, between 2005 and 2021.
These macroeconomic data coincide with the evidence on business investment projects collected by EY (EY Attractiveness Survey). Between 2015 and 2022, the number of projects attracted by Portugal increased from 47 to 248 and the country became the sixth to attract the most projects, with 4% of total FDI projects in Europe. Until 2017, Portugal attracted less than 1% of projects and had never appeared among the 20 most attractive European countries. The attraction of investment projects in industry, but also in new areas such as IT services and business services, made a very important contribution to the increase in exports.
However, in the last two years, according to EY, the number of projects attracted by Portugal decreased by 21%. Portugal fell from sixth to ninth position, among the most attractive European countries. The weight of FDI in GDP has also been declining for four consecutive years, having fallen from a maximum of 75% in 2021 to a value close to 69% this year. Even so, the drop in FDI attraction was much less pronounced than what occurred in the Euro Zone or the OECD.
Cycle of export growth and FDI interrupted?
The year 2025 should be the third consecutive year of a fall in the weight of exports in GDP, something that has not happened for more than 30 years, and the fourth year of a decrease in the weight of FDI stock in GDP. Has the very positive cycle of the last two decades come to an end, or is it just an adjustment?
Data from the third quarter of 2025 show a decrease in exports of goods, compared to 2024. In total for the year, exports of goods may be just 1 or 2 percent above those of three years ago.
If the growth of the first nine months of 2025 continues, we will have an average nominal growth in exports of goods of 0.8% for these three years. This contrasts with the period between 2015 and 2022, where annual growth was around 7%. Nominal growth of 0.8% per year means a decrease in real terms and a drop of six points in the weight of exports of goods in GDP, in just three years.
The decrease in weight in GDP occurred only in goods. Service exports continued to grow faster than GDP – see graph 2. But even these are registering a slowdown. After a decade with growth close to 10%, services exports grew 8% in 2024 and, in 2025, slowed to 5% growth.
Graph 5 shows that the evolution of exports in the various sectors was very different. Several sectors maintained positive growth. For example, in chemicals and pharmaceuticals, aeronautics and fruit, exports continued to grow at a faster rate than GDP. In machinery and automobiles, nominal exports grew, but at a rate that was half that of GDP growth.
But in other sectors, developments were more worrying. In these three years, pulp and paper exports have fallen by 20%, footwear by 13% and textile and clothing exports by around 10%. This reduction in revenue is not accompanied by a reduction in costs. During this period, the average wage increased by 14.5% and the minimum wage by 23%.
In 2022, part of the growth in goods exports was due to the rise in the price of fuel and food. The decrease in fuel exports in 2023 reflected the sharp drop in the price of oil and refined products that year. After that, price variations were more moderate, but the decrease in the weight of exports of goods in GDP continued, in 2024 and 2025, and included sectors that were not very energy-intensive and very labor-intensive, in which, given the evolution of wages, it is inevitable that there would have been a drop in production and margins in exporting companies.
It is also important to highlight that the slowdown in exports, in 2023, 2024 and early 2025, does not yet reflect the effects of Trump’s tariffs. Government forecasts point to exports growing in 2025 by half of the previous year, and for low growth to continue in 2026, implying a decrease in the weight of exports in GDP for the fourth consecutive year. According to the Government, the effect of Trump’s tariffs should contribute to a 0.7 point reduction in export growth. This means that, even without the effect of Trump, export growth would be below GDP, and well below the average export growth over the last decade.
The evolution of the last three years and the worsening of external conditions for the next few years suggest that we are facing an interruption, both in the process of increasing export capacity, which marked the period from 2005 to 2022, and in the growth model driven by exports and attraction of FDI, which allowed Portugal to have GDP to grow above its community partners, while at the same time reinforcing the external balance.
The European and global situation is not very favorable. But, in the period between 2005 and 2022, the situation was not easy either, with the financial crisis, the pandemic, and the retraction of globalization, which were already beginning to be felt. Portugal, in these years, managed to grow not at the pace of growth of European markets (which was weak) but rather by gaining market share. And that is what today seems to no longer be happening.
Does this mean that Portugal will go backwards? Maybe not. After the strong increases that accompanied the entry into EFTA and the EEC, there were periods of stagnation (in the 1970s and between 1990 and 2005), in which export capacity did not advance, but neither did it retreat.
Portugal may just be stabilizing and at a higher level. However, the fact that, unlike in the last 17 years, we are not managing to grow more in exports, limits the growth in expenditure that the country can have in the next decade, if it wants to maintain the external balance, which it took so long to achieve.
A wider aperture means greater exposure. In goods, changes in trade policy and the fragmentation of value chains bring new risks, but also opportunities for attracting FDI. In services, the evolution of the internet created opportunities for relocation, which Portugal knew how to take advantage of. But artificial intelligence can quickly eliminate some functions that have been delocalized.
What can we do?
At a time when the international situation is more unstable and difficult, it is necessary to have a more determined foreign policy, which helps to compensate for losses in markets that are closing, with gains in other markets. Portugal should look more towards Asia and Africa and place the EU-Mercosur agreement at the top of its European agenda.
At the level of microeconomic policy, it is important to reinforce policies to support investment, innovation and internationalization. We must reinforce not only AICEP’s resources for attracting FDI, but also the support and financing instruments for internationalization, helping to mitigate the increase in uncertainty that companies face.
New technology companies will play an increasingly important role in internationalization. The Portuguese have shown a good ability to create companies based on innovation, with a global vocation since the beginning. These companies have needs to access risk capital, talent and customers, which are very different from traditional exporting companies, which require their own strategy.
It is also important to understand the need for these technological companies, and other more traditional export sectors (such as Tourism and agriculture), to maintain access to international labor, and avoid radical solutions in the management of immigration, which can be very negative for the country’s competitiveness.
Finally, at a macroeconomic level, it is important to understand that export growth below GDP means that GDP growth is already being driven by domestic demand. In a small country, open to the outside world, everything that increases GDP, such as increased consumption, investment or public spending, also increases imports, as each of these always has an imported component. Lower export growth is either accompanied by a moderation in the growth of consumption, investment and public expenditure, or by external deficits, which we know require sacrifices to return to balance.