Living in Portugal

Is the Portuguese economy all washed up?

For many years Portugal has been one of the more prominent expat destinations in Europe and one which continues to attract the attention of many travellers around the world. While not one of the largest economies in the world, Portugal has a population of around 10.7 million with a total land mass of just over 92,000 km². However, the country has a history on which a significant tourist industry has been based and continues to grow.

There have been many changes in Portugal over the last few years not least with the economy which has moved from one based around public consumption and public investment to one which now takes in exports, private investment and a growing influence in the high-tech industry. While it would be unfair to say that the changeover has always been smooth and successful, there is no doubt that changes made in the past are now benefiting the Portuguese population, expats in the region and Portugal as a tourist destination.

Climate

As with the likes of Spain, for many people it is that climate which is one of the main attractions of Portugal although the country is split into two specific regions with the mountainous areas of the North and the more tourist-based and warmer climate in the South. Like so many countries which attract the attention of large numbers of expats, this very definitive split in the climate and the geography of Portugal offers a mixture of experiences for different people with different needs.

Portugal is officially regarded as one of the warmest European countries with the average annual temperature varying from 13°C in the mountainous regions of the North to around 80°C in the more prominent areas of the South. However, temperatures have been known to rise as high as 50°C in the summertime with limited rainfall in the warmer climate areas of Portugal. When you consider the number of islands connected to Portugal, the vast difference in geography between the North and South and the enormous variation in temperatures and climate you start to appreciate why living in Portugal has become a real option for many expats around the world.

The climate in Portugal can be a very big magnet for many expats and is discussed in detail in the forum :-

“Wind/Rain – I don’t like wind at all so are there any areas with alot of it and/or at a particualr season? At the same time somewhere humid without breeze would be a no no too…
What am I thinking with Global warming no weather is stable anymore”

Economy

The Portuguese economy has undergone a massive change over the last 40 or 50 years which has seen the economic model transferred from one of public consumption and public investment to one specifically focused on exports, private investment, high-tech industries as well as travel and tourism. A number of reports over the last few years perfectly reflect the “flip-flop” nature of the Portuguese economy which was the 22nd most competitive in the world back in 2005 but has since fallen to 43rd place in 2009.

However, when you consider that Portugal has the lowest GDP per capita in Western Europe yet still manages to compete on the worldwide stage there is hope for the country and the Portuguese economy. Unfortunately, the credit crunch and the worldwide slowdown have impacted significantly on the economy of late and indeed a number of the credit rating agencies have placed the Portuguese sovereign debt rating on negative watch. Whether this will result in an actual reduction in the rating remains to be seen but obviously this is a concern in the short to medium term.

You really do need to be aware of the make up of the economy in Portugal so that you can prepare yourself for the future :-

“Basically, in a nutshell, are we likely to get on well living in portugal, just as well as we do here (ie, just getting by lol!!)? And where is the best place to try? My husband comes from Madeira and came over to the UK when he was a teenager so he’s not too clued up on the economy/education and healthcare systems etc over there. Any help or advice would be very much appreciated.”

Employment

As we touched on above, Portugal is now well positioned in sectors such as exports, private investment, high-tech, tourism and travel. There are also a number of other areas of particular interest which include textiles, clothing, footwear, wood products and beverages giving a number of potential employment markets to those moving to Portugal. However, there are concerns about the unemployment rate which has recently risen to a high of 10.2% prompted by the weak economy in Portugal and the weakness of the overall worldwide and European economies. The fact that the sovereign credit rating has been placed on negative watch by a number of credit rating agencies is also a concern and will impact upon short-term investment into the Portuguese economy and the Portuguese employment market.

However, Portugal is not alone in experiencing relatively high unemployment although the fact that the economy is relatively small compared to many other European economies may well hold it back in the short term. There are also concerns regarding specific municipalities in Portugal where there have been various reports of alleged corruption in the fields of politics and business. While these particular issues are still of concern, they are nowhere near the level of years gone by due to a crackdown by the Portuguese national government.

Finding work in Portugal is not always easy and this topic is discussed at length in the Portugal forum :-

“I understand that as an EU national, I simply apply for a residency card once we arrive, but how does this process work for a non-EU spouse – some of the information I received suggests that it is very difficult, while others have said that the process is long and frustrating but otherwise straight forward (ie. possible).”

Tax

For those on low income in Portugal the Portuguese personal income tax rate compares favourably to countries such as the UK although for those on higher incomes the situation is a little less clear. In simple terms the Portuguese individual income tax rates for 2009 range from 10.5% for the first €4755 up to 42% for income over and above €64,111 a year. As with the vast majority of countries around the world, any resident of Portugal is not only liable to pay income tax on their Portuguese earnings but also their overseas earnings. However, a foreign resident working in Portugal is only liable to pay tax on their Portuguese income.

Other taxes which you need to be aware of in Portugal include VAT which is set at 20%, a reduction from the previous rate of 21%, although there are various reduced rates which apply to restaurant services, food products, etc. It is also worth noting that some areas of Portugal have their own specific VAT rates which can range from anything from 4% to the national average of 20%. For those looking to acquire property in Portugal there is a 6.5% real estate transfer tax for urban property and a 5% rate for non-urban property.

Thankfully for those looking to move their families to Portugal, inheritance tax and gift tax has been abolished making it more financially attractive to transfer assets between family members.

Tax in Portugal is an issue we all need to be aware of as it can impact heavily upon your life style :-

“I am trying to figure out how much income i need to live in Portugal. I will be retiring in a year or two. I will be getting roughly $2500 to $3000 a month and at today’s rate of $1.5 per euro i am looking at 16666 euros to 2000 euros. Is that enough to live in Portugal in city such as Lisbon?”

Cost of living

As you would expect from a country which continues to attract the attention of many expats around the world as well as business investors, the cost of living in Portugal has increased significantly over the last decade. However, while the cost of living in general has increased there is a marked difference between the more popular cities of Portugal and the rural areas where there is still a relatively inexpensive cost of living. As with any country around the world, it really does depend upon the type of lifestyle you are looking for and how far your finances will be able to stretch.

The main reason for the increase in the cost of living in Portugal has been a rise in salaries which has obviously impacted upon economy and the cost of goods and services. While the cost of clothing, cars and other popular consumer goods can often be more expensive in Portugal compared to other European countries, the average cost of dining out, rent, property and general entertainment can in many circumstances be significantly less than you would experience in countries such as the UK.

Even though there has been a marked increase in the cost of living in Portugal it is difficult to give a general opinion and general figure because the cost can vary so widely between the rural areas of Portugal, which remain relatively untouched in some regions, and the more prominent cities of the country. The cost of living in Portugal will vary upon the area in which you reside and the lifestyle which you so desire.

There are so many issues to consider when looking at the cost of living in Portugal, many of which are discussed in the Portugal forum :-

“Hello Again… my husband and I are going to the Silver Coast for a six month recce from October to see whether we would like to settle in the area. However, we are dismayed at the way the pound is falling ever lower against the euro. Can anyone comment on how this is impacting on the cost of living in Portugal please?. Also worried about the value of our pensions although these have some years to run yet. Thanks for any feedback on this.”

Property Prices

As you would expect in a country where the economy is struggling, unemployment is high and national debt is of concern to the credit rating agencies, the property market in Portugal has struggled over the last couple of years. However, the very fact that Portugal has adopted the euro is something of a double edged sword for those acquiring property after converting from currencies such as sterling, because of the strength of the euro. Indeed, a number of UK-based investors who have moved to Portugal after converting their sterling savings into euros and acquiring property have actually seen the value of their properties increased significantly in sterling terms.

In many ways the Portuguese property market never really became involved in the significant European property boom between 1995 and 2006. When you consider that the average property price in Spain doubled between 2001 and 2006 against a rise in Portuguese property prices of only 17% during the period, this is a perfect reflection of the difficulties of the Portuguese property market. We have also seen a significant increase in housing stock in Portugal which has in many cases flooded the market at a time when the economic downturn is taking more and more potential buyers out of the picture.

As a consequence of the ongoing economic downturn, many people believe that the Portuguese property market will struggle until at least the end of 2010 although with employment still rising there are fears that the cost of property in Portugal could continue to fall beyond 2010, before it finally starts to recover. Living in Portugal may not look as attractive in the short term as it has in the past, but if you look beyond the short-term difficulties of the economy and the property market there may well be some interesting investment opportunities for those looking longer term.

Property prices in Portugal can vary wildly although a number of different areas of the country have been discussed in detail in the Portugal forum :-

“I am currently a sophomore in a University here in the United States and I am majoring in International Relations. After me and my fiance graduate college, we want to move to Europe (she is studying to either be an engineer or teacher). We have a top 5: Portugal, Spain, France, Switzerland, and Italy. Currently, we are leaning heavily towards Portugal. We are looking at Madeira, the Azores, or Lisboa.”

Expat communities

In many ways Portugal is a mini version of Spain in the expat market with a growing number of people around the world looking to relocate to Portugal for the climate, lifestyle and for many people in their later years, the golfing circuit!

As you would expect from a tourist and travel dominated economy, the vast majority of expat communities are situated in and around the more popular and prominent coastal resorts. For many people, the existence of this substantial expat community in Portugal offers a very supportive and a very important drop back for advice and assistance where required. However, as we have reiterated on so many occasions it is vital that not only do you integrate yourself with the local expat community but if you are looking longer term it is vital that you integrate yourself with the local Portuguese community as well.

Moving overseas offers not only offers a new lifestyle and a new way of living, but also the opportunity to experience new cultures. Whether you decide to experience the full “Portuguese lifestyle” when living in Portugal is a matter for individuals but to fully enjoy and fully live the life available in Portugal you do need to open yourself up to new experiences.

Transport network

Even though Portugal is not the largest country in Europe, or indeed one of the largest economies around the world, many people will be surprised to learn that Portugal was amongst the first countries in the world to build a motorway system. When you also take into account a significant government emphasis on transport back in the early 1970s and again in the 1990s it is encouraging to report that Portugal has a very acceptable and thorough transport network.

As well as the comprehensive road network there is a very prominent rail network, various underground systems, a network of trams as well as a number of popular airports. Thankfully the government has over the last 20 or 30 years stepped up to the mark with regards to improvements to the Portuguese transport system, something which is now starting to bear fruit for the overall economy and the country as a whole.

Conclusion

Those who have looked at potentially living in Portugal will be well aware of the country’s history, what it has to offer, the climate and the economy. While it would be wrong to suggest that the economy is currently in a perfect situation, like so many other economies in Europe and around the world, there have been significant improvements in this area over the last 50 years.

As with the many countries around the world which seem to attract more and more expats, the definitive climatic differences between the North of Portugal and the South of Portugal, and the variations in between, offer a number of different experiences and types of lifestyle. When you also throw in the growing attractions of coastal resorts in the South of Portugal, where golf is a prominent past time, it is not difficult to see why the country is attracting such interest. Living in Portugal is a real alternative for more and more people around the world, but as ever, you need to do your own homework so you know exactly what to expect upon touchdown.

Tagged as: Living in Portugal