The Portuguese economy is very closely dependent on the overall developmental trends of the EU and its efforts to match the requirements of the single European economic space. Over the first decade of the 21st century, it will continue to progress towards more private enterprise and competition. Privatization will continue to be an important issue in telecommunications, manufacture, and the other utilities, although the government is likely to retain special rights in key companies. It will also seek international strategic partners for those companies. Incentives to attract foreign direct investment will receive more attention, and Portugal may attract some new additional investment from its close links with Spain and Latin America. Gradual discarding of EU quotas on imports of textiles and clothing will create conditions for increase in Portugal's exports to the union members. The possibility of further negotiations on multilateral trade liberalization within the World Trade Organization (WTO) may also contribute to the future reinvigoration of the Portuguese export sector.
Trade with non-EU countries, including its former African, Asian and Latin American colonies, should continue to increase. A major simplification of corporate taxation is expected before 2003, and the corporate tax rate might be reduced to 30 percent (although indirect taxes may rise). Improved investment incentives may come under further EU scrutiny while stock market liquidity and capitalization will increase, boosted by further privatization. Due to the limited size of the domestic capital markets, more medium-sized businesses will increasingly seek funding in the international markets. A further consolidation in the financial sector and the emergence of more powerful banks, able to better realize economies of scale, compete in the single European market space, and make use of the Internet revolution, is also expected.
Work on the government's ambitious road building program and the new urban rail networks in Oporto and Lisbon will continue. The main seaports will be upgraded, and Lisbon is expected to receive a new international airport.
Portugal will experience more serious problems as new Central and Eastern European members of the EU with more pressing needs start competing for development funds. Agriculture and fishing may face a corresponding decrease in subsidies. It is logical to expect that Portugal, along with Greece, would not be overzealous in the process of the new members' accession to the EU. No major dangers for the economy have been envisaged (projected) and growth is forecast to decrease only slightly below the EU average in 2001 and 2002. Yet the current high levels of household indebtedness and the recent rise in house prices suggest there could be a risk of a severe decrease in consumer spending, particularly if interest rates go higher than expected. Such developments may significantly harm retail and domestic consumer goods manufacturers.