On the 6th of last month in Portugal's second largest city, Porto, the area in front of Porto City Hall located in the city center was bustling with construction work for a new subway line expansion. The goal is to accommodate more than 30,000 new passengers daily, connecting Porto city with outskirts like Boavista and Gaia. There are expectations for increased urban consolidation and enhanced tourism.
On the same day, a long line of group tourists from around the world stretched in front of the Livraria Lello, a famous attraction in Porto. Mia Anderson (18), a tourist who came for a family trip from the United States, said, “I’m a Harry Potter fan, and I feel like I’m in Hogwarts,” adding, “The entire Porto is so beautiful.”
Recently, the Portuguese economy has been steadily recovering from a recession. In the past three years, Portugal's economic growth rates were 5.7% in 2021, 6.8% in 2022, and 2.3% in 2023. During the same period, the European Union's (EU) economic growth rates were 6.0%, 3.5%, and 0.5%, respectively.
The Portuguese economy faced a serious crisis after the 2008 global financial crisis, alongside countries like Italy, Greece, and Spain, due to massive financial liabilities and public debt. National liabilities reached 129% of Gross Domestic Product (GDP) in 2012, and the fiscal deficit soared to 9.8% of GDP in 2009.
The countries previously known as 'PIGS' implemented strong structural adjustments across both public and private sectors in alignment with the EU's bailout programs. Despite strong public backlash and resistance, the outcomes of these reforms are evaluated as clearly beneficial.
The Federation of Korean Industries (FKI) analyzed in its recently published report, 'Recent economic recovery and implications of the three Southern European countries,' that the cases of the three Southern European countries, including Portugal, show how market-friendly structural reform policies have driven economic recovery, suggesting they could serve as benchmarking examples for the Korean economy.
◇ Portugal's economic recovery… tourism leads post-endemic
Since the COVID-19 endemic, the number of global tourists visiting Portugal has increased, driving economic recovery. The country is known for its historical scenery and relatively low cost of living compared to Western Europe. Additionally, the Portuguese government actively implemented policies to attract visitors, such as the introduction of temporary residence visas for foreigners, which have been effective.
According to the Portuguese Tourism Board, approximately 30 million tourists visited Portugal in 2023. Tourism revenue reached about 25 billion euros (approximately 37.4 trillion won). This figure surpassed pre-COVID-19 pandemic records, and as of last August, tourism revenue exceeded 4.1 billion euros, achieving an all-time high.
Currently, the tourism industry accounts for about 16.5% of Portugal's GDP. It is analyzed that this contributed to nearly half of the 2.3% economic growth rate in 2023. In response, the government has initiated measures to improve tourism infrastructure, including the establishment of a second airport in Lisbon.
However, the high dependency on tourism has also led to side effects such as rising housing rental market prices. There are concerns about Portugal's 'Dutch Disease.' Dutch Disease refers to a phenomenon where the weight of a specific industry in the economy grows too large, causing other industries to lose competitiveness. This term originated from the temporary economic boom in the Netherlands following the discovery of North Sea oil in the 1950s, which later led to currency appreciation and soaring prices, causing the domestic manufacturing base to collapse and leading to stagnation until the 1970s.
◇ Portugal reborn as a 'European startup hub'
Another driving force behind the economic recovery is the economic innovation represented by the startup boom. With the implementation of measures such as affordable prices, excellent digital infrastructure, tax benefits, and the introduction of startup visa benefits, Portugal has transformed into a 'startup hub' in Europe, attracting foreign capital and talent.
According to the Portuguese government’s statistics, foreign direct investment in Portugal has exceeded $9 billion (approximately 12 trillion won) annually from 2022 to 2023. Although this is still below the $10.3 billion (approximately 13.7 trillion won) recorded in 2019 before the pandemic, it has more than doubled compared to $4 billion (approximately 5.3 trillion won) in 2020.
The number of startups in Portugal increased from 2,193 in 2016 to 4,073 in 2023. The number of unicorns (unlisted startups valued at over $1 billion) has risen to seven. The annual 'Web Summit' held in Lisbon is recognized as the largest startup event in Europe.
Startups have also had a positive impact on revitalizing the local economy and increasing employment opportunities. For instance, 'Startup Porto,' a public-private partnership startup support facility, provides various programs to discover and nurture local startups.
Successful cases introduced by this institution include 'Colossus Craft Brewery,' a company brewing craft beer using Porto's unique recipes, and 'Gallery Hostel,' which combines Porto's cultural assets with the hospitality industry. Additionally, ‘Physio Trim Trim,’ which provides pediatric physical therapy, and sustainable corporation 'Flowco' are expanding beyond Porto across Portugal and into Europe.
A representative from Startup Porto noted, “We are playing a central role in the foundation of entrepreneurship in Portugal through public-private collaboration. We are providing a platform for innovation and sustainable growth,” and added, “The Portuguese startup ecosystem is rapidly growing through increased venture capital investments, strengthened incubator activities, and innovation-promoting policies.”
Although the youth unemployment rate remains high, the growth of the tourism and startup sectors has expanded employment opportunities. After the European financial crisis in 2013, Portugal's unemployment rate reached 18.3%. Since then, thanks to labor market reforms and economic recovery, the unemployment rate fell to the 6% range by 2019. By the end of last year, it was 6.5%, significantly lower than that of other Southern European PIGS countries like Italy (7.9%), Greece (10.8%), and Spain (11.3%).
However, high income tax rates compared to other European countries are cited as a limitation, leading to the outflow of local talent. To address this, the Portuguese government has decided to implement income tax reduction policies to prevent the outflow of young talent. This policy aims to exempt individuals under 35 years old with an annual income of up to 28,000 euros from income tax for ten years, fully exempting them in the first year.