For many years, Portugal relied on external financing, but currently, the situation is different. Over the past decades, the Portuguese economy has moved from persistent external deficits to a context of external surpluses.
When the balance of external accounts is positive, it means that the country has net lending Situation in which the country generates sufficient resources to finance the rest of the world or reduce debt. vis‑à‑vis the rest of the world, allowing it to reduce external debt or accumulate financial assets. When it is negative, the country requires external financing, which translates into an increase in debt or a reduction in financial assets.
This reading is provided by the combined current and capital accounts balance, which captures the real economic transactions between residents and non‑residents. The financial side of these transactions is recorded in the financial account Shows how the country’s financial assets and liabilities vis‑à‑vis the rest of the world evolve over time. , the other component of the balance of payments.
Over the last 30 years, Portuguese external accounts have shown a structural shift in the pattern of the Portuguese economy’s relationship with the rest of the world:
The turning point came in 2012, when the first positive current and capital accounts balance was recorded, equivalent to 0.6% of GDP. In 2024, that balance reached the highest value in the series, corresponding to 3.3% of GDP.
The external balance Difference between what the country receives and what it pays in its economic relations with the rest of the world. reflects the combination of several components, with relatively persistent dynamics. In the Portuguese economy, the goods and primary income Includes income related to labour and capital, such as wages, interest, and dividends. accounts’ balances tend to be negative, while the services, secondary income Includes current transfers, such as emigrants’ remittances, social benefits, or contributions to the European Union. and capital accounts’ Records, mainly, transfers for investment, such as EU funds for infrastructure or development. balances are generally positive.
Source: Banco de Portugal
The trade balance Difference between exports and imports of goods and services. played a decisive role in the evolution of the current and capital accounts balance. Up to 2010, that influence was reflected mainly via the goods balance deficit, while the services balance remained more stable.
In 2008, the year in which the external balance reached its most negative value in the series, the goods balance also recorded its largest deficit, at ‑13.4% of GDP. From 2011 onwards, the goods and services accounts’ balances improved, contributing to the turnaround in the external balance in 2012. This improvement reflected both strong export performance and a more subdued growth in imports.
The trade balance was therefore at the heart of the shift in external accounts, although it does not, on its own, fully explain that evolution.
Source: Banco de Portugal
The improvement in the trade balance occurred in a context of stronger trade linkages between Portugal and the rest of the world. The degree of openness of the economy Combined weight of exports and imports in GDP. has shown an upward trend over recent decades, becoming more pronounced from 2009 onwards. The highest value between 1996 and 2025 was recorded in 2022, when the degree of openness reached 101.1% of GDP. Since then, it has declined, reaching 86.6% of GDP in 2025.
In real terms, the evolution of the Portuguese economy’s degree of openness broadly mirrored the trend observed in the European Union (EU). However, since 2000, Portugal has had a degree of openness below the EU average. Between 1996 and 2025, this indicator increased by 26.3 percentage points in Portugal. In the EU, it increased by 39.5 percentage points (AMECO data, 2025).
Source: Banco de Portugal and AMECO
Although the trade balance was decisive, the evolution of Portuguese external accounts cannot be understood solely by analysing exports and imports. Income and transfers vis‑à‑vis the rest of the world also play a relevant role.
In the case of the primary income account, the contribution has generally been negative. With the exception of 1996, Portugal has always recorded negative balances in this account, reflecting mainly investment income paid to non‑residents, where interest expenses are included.
This outcome is associated with the fact that the Portuguese economy has a negative international investment position Difference between the financial assets Portugal holds vis‑à‑vis the rest of the world and the liabilities the rest of the world holds vis‑à‑vis Portugal. , that is, it has more external liabilities than external assets.
Even so, in more recent years, this deficit has narrowed, benefiting from the reduction in external debt and the decline in benchmark interest rates.
Some components of the primary income account have, by contrast, made a positive contribution to the external accounts balance, notably subsidies received from abroad, particularly those linked to European funds, and, more recently, compensation of employees, whose weight has been increasing.
As a result, although the primary income account balance continues to weigh on the external accounts, its impact has become less unfavourable.
Source: Banco de Portugal
The secondary income account presented a positive balance throughout the period under analysis, systematically contributing to the improvement of Portugal’s external accounts.
Despite some declines, mainly associated with a reduction in remittances received from emigrants and, in certain periods, an increase in Portugal’s financial contribution to the European Union budget, the more recent trajectory has been one of growth. After reaching, in 2010, the lowest value in the series (0.3% of GDP), the balance of this account gradually recovered.
This evolution was underpinned in particular by an increase in remittances, social benefits received from abroad (for example, retirement pensions) and, in some years, a strengthening of current international cooperation, which includes transfers between the governments of different countries or between governments and international organisations. In 2021, the year in which this component recorded its highest balance (0.9% of GDP), the allocation of European funds made a particularly relevant contribution in the context of measures to support companies in the aftermath of the COVID‑19 pandemic.
Source: Banco de Portugal
The capital account also presented a positive balance throughout the period under analysis. Between 1996 and 2025, its balance averaged 1.5% of GDP. While secondary income mainly reflects relatively stable current flows, the capital account is more linked to investment programmes and cycles of European funding.
The evolution of this account largely reflects the behaviour of capital transfers, in particular investment grants from the European Union. These transfers are largely intended to finance gross fixed capital formation projects, such as infrastructure or technological development initiatives. In 2025, the balance of investment grants amounted to 1.4% of GDP, equivalent to €4.2 billion. More than half of this amount was associated with the Recovery and Resilience Plan (RRP).
Source: Banco de Portugal
Over the past five years, the Portuguese economy has recorded, on average, a current and capital account balance below that of the European Union. Between 2021 and 2025, the combined current and capital accounts balance corresponded to 1.6% of GDP in Portugal and to 2.8% of GDP for the European Union.
Nevertheless, the gap is now much smaller than it was between 2007 and 2011. At that time, Portugal recorded, on average, a very large need for external financing, with a balance of -8.4% of GDP, while the EU average stood at 0.4% of GDP.
Portugal’s relative position is therefore substantially more favourable than in the past, even though the country’s external surplus remains below the European average.
Source: Banco de Portugal, Eurostat and ECB
The combined current and capital accounts balance has direct impact on the financial account balance, which records transactions in financial assets and liabilities between residents and non-residents.
Over the past 30 years, it is also possible to distinguish between two distinct periods regarding the Portuguese financial account balance. Until 2011, the net external deficit resulted in negative financial account balances, and the net international investment position (IIP) became more negative. From 2012 onwards, the net external surplus led to positive balances in the financial account, contributing to a more positive development of external assets and liabilities.
This shift was crucial to the improvement of Portuguese IIP. After a period of continuous deterioration, the stock of net external assets vis-à-vis the rest of the world has been on a recovery path, reaching ‑50.3% of GDP in 2025, which compares with the lowest value of -124.4% of GDP recorded in 2014.
Source: Banco de Portugal
Overall, these developments resulted in a significant correction of the successive external imbalances observed in the past and an improvement in Portugal’s external financial position.