The Economy of Portugal - How Tourism Turned Portugal Around

Tourism has saved the Portugal economy. The history of the economy of Portugal is a rollercoaster ride. It has had periods of high growth, it has had long periods of low growth. So how has tourism helped the Portugal economy?

During the 1920s, the Portuguese economy went through a very tough time. Like many European countries at the time, it was experiencing high inflation and instability. This led to the rise of dictator rule.

Like many dictators, Antonio Salazar came up with a name for his economic plan - Estado Novo, the New State. The aim of this was to change the economy of Portugal. Salazar wanted to create stability first and foremost by reducing public borrowing.

For years, the Portuguese economy trundled on, albeit with some very weird economic policies. For example, the Government could veto new factories and new investment in machinery. It was all very bizarre.

Once Salazar had departed, due to a military coup, the Portuguese economy became unstable once again. Within the 10 years following the coup, the International Monetary Fund had to intervene twice to help stabalise the economy of Portugal.

Thankfully, economic integration within Europe was speeding up and this gave the Portuguese economy a lifeline. Entering the European Communities helped to stabalise the economy of Portugal. It did this by increasing trade with more developed countries like France and Germany. It also helped Portugal to access development funds to help with economic development.

This stability was welcomed and eventually, Portugal joined the Euro. What was strange for the Portugal economy was that it never experienced rapid growth. Unlike countries like Estonia and Latvia, which were growing at over 10% per year, Portugal was growing at under 2% per year in the early 2000s.

Portugal's nearest neighbour, Spain, was going through a ridiculously large economic boom. In the same years, unemployment in Portugal was rising.

And then, the global financial crisis hit. This harmed the economy of Portugal dramatically. Firstly, it harmed their key export markets across the rest of Europe. Secondly, it highlighted key structural weaknesses within the economy.

Portugal's credit rating was downgraded by both S&P and Moody's. This led to Portugal having to go back to the IMF and EU for a bailout. The bailout came on the condition of economic reforms. That is where tourism stepped in.

Whilst the economic reforms in Portugal hurt, tourism came to save the day. Between the global financial crisis and 2017, Portuguese exports boomed. 20% of that export boom came from tourism.

The Portuguese economy was benefiting significantly from this rise in tourism. People from other more developed countries like the UK, France and Germany, were choosing Portugal as their holiday destination.

Employment in the tourism industry went up. GDP per capita in Portugal started to go up. Thankfully, tourism stepped in and the Portugal economy benefited as a result!

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