The Portuguese tourism sector is set to grow by 5.3 per cent in 2019, more than double the European average, according to the World Travel and Tourism Council. Strong tourism growth bodes well for the Portuguese economy, considering tourism brings in 20 per cent of the country’s GDP. The industry, which employs just over a million of the country’s total 10.3 million residents, has been one of the main drivers of Portugal’s strong bounce back after the economic crisis – alongside solid performance in the manufacturing sector and growing domestic demand – in part due to the government’s fiscal stimulus efforts.
Having grown by 8.1 per cent last year – the highest tourism growth rate across the European Union – Portugal’s tourism industry brought in 38.4 billion euros in revenue, and made up one in five jobs. Leisure travelers rather than those on business made up 85 per cent of visitors, and 69 per cent of tourists came from abroad.
This growth is in part due to the government’s Strategy 2027, a ten-year tourism plan that seeks to boost overnight stays, and increase revenue in the sector. Aside from these goals, it also takes measures to reduce seasonality, to ensure that jobs do not cyclically appear and disappear depending on when tourists prefer to travel to the country. To guarantee that tourism does not damage Portugal’s natural environment – one of the main pulls for visitors – the government’s plan has set standards for sustainable water and energy use, that will apply to 90 per cent of tourism companies.
The challenges of diversification
While the tourism industry continues to grow; heavy reliance on one sector can pose broader challenges, as a decline in tourism can have knock down effects across the economy. While the government is taking steps to guard against this risk, political instability abroad can affect Portugal’s tourism industry – being outside the government’s control.
Recent growth in Lisbon and Porto have led to shortages in rental properties and sharply increased prices, putting increased pressure on local economies. Tourists have increasingly been traveling to new destinations, however, measures are in place to mitigate associated challenges on the traditional hubs. For example, in March the tourism board of Algarve, in Southern Portugal, founded a Sustainable Tourism Observatory to study the region’s economic, social, and environmental sustainability, and use this research to inform new tourism strategies. Another such observatory has been operating in Alentejo since 2017.
The single largest source of tourists to Portugal is the United Kingdom, which supplies one-fifth of all visitors to the country. It is not clear what effects Brexit may have on British holiday plans, but visits to Portugal from the UK dropped by 7.3 per cent last year. A fall in the pound may further deter British travel to the eurozone. To preempt any negative effects ahead of Brexit, the Portuguese government has pledged to maintain visa free travel for British visitors, and plans to open separate customs lanes for British passport holders in Algarve and Madeira. Portugal also passed a law ensuring the rights of British citizens living in Portugal in the event of a no-deal Brexit. On the flip side, instability in competitor markets has proven favorable to the Portuguese tourism industry. Due to perceptions of increased security risks, tourism to France, Tunisia, Egypt, and Turkey, has declined since 2010, while Portugal, Spain, Italy and Greece, have all seen upticks.
The Portuguese economy has improved drastically since the crash in 2009. Tourism has played a major part in this recovery, helping to bring the current account from a long-term deficit of 10 per cent into balance. In addition, the pro-growth policies of the left-wing coalition government under Antonio Costa, not only helped spur economic recovery, but also contributed to political stability – as Portugal is nearly unique in Europe, where no other far-right Eurosceptic party has risen. The Spanish coalition government led by Pedro Sanchez, who won in Sunday’s elections, has seemingly taken the Portuguese experience as a model, having passed a minimum wage increase, and is promising greater investment in infrastructure and renewable technology.
However, Portugal faces certain challenges moving forward. IMF head, Christina Lagarde, noted that “Portugal has a strong track record of undertaking reforms whilst protecting the most vulnerable”, highlighting the country’s history of making changes in a politically sustainable and equitable way. Challenges nonetheless remain; among them, consolidating the progress that has already been made in cleaning up the banking sector, bringing public debt under control, and further developing tourism and other export industries.
“You should build on recent success to strengthen your resilience further”, Lagarde advised the Portuguese government last month. “Pursuing reforms today might be difficult, but these reforms will help during a storm.”