Manufacturing and construction together accounted for 29% of Portugal's GDP in 2001. The largest industries are clothing, textiles, footwear, and food processing, wood pulp, paper, and cork; metal working; oil refining; chemicals; fish canning; wine and tourism. Agriculture, forestry, hunting and fishing employed 12.5% of the work force in 2000 (down from 26.2% in 1971) but contributed about 4% of the GDP. The percent of the labor force in services rose from 39% in 1971 to 52.4% in 2000, accounting for about 65% of GDP. Traditionally, productivity has been hampered by low investment and a lack of machinery and fertilizers. The economy has experienced robust growth since 1993, however, primarily due to increased investment and domestic consumption, both in turn traceable to advantages Portugal has gained through its entry into the European Community in 1986. In 1986, Portuguese income was about 52% of the EU average; by 2002, GDP per capita on a purchasing power parity basis had risen to over 70% of the EU average.
From the end of 1973 through 1983, the energy crisis and insufficient liquidity jeopardized economic growth, which dropped still further following the overthrow of the Caetano regime in April 1974. GNP growth in 1974 fell to 2.3% from8.1% in the previous year. The decline was caused by a sharp drop in new offers of investment and credit from abroad (investors feared rising Communist influence and government takeovers of private firms), coupled with a decline in tourism and a massive increase in unemployment primarily resulting from the return of Portuguese settlers and soldiers from newly independent Angola. During the late 1970s, Portugal adopted an austerity program and succeeded in lowering inflation to 16.6% and increasing GDP growth to 5.5% in 1980. However, adverse interest and exchange rates and a severe drought during 1980–81 resulted in a resurgence of inflation (an estimated 22.5% in 1982) and sluggish economic growth (1.7% in 1981 and 2% in 1982).
In mid-1983, the Soares government implemented an IMF stabilization plan of drastic internal tightening, which brought steady economic improvement. The persistent current-account deficits ended in 1985, partially as a result of the decline in world oil prices and entry into the EC. The Silva government's economic liberalization emphasized competitiveness and accountability. From 1987 to 1999 Portugal was the net recipient of financial inflow from the EU of about $27 billion, most disbursed through the European Regional Development Fund. The money was spent on infrastructural improvements, most notably the highway system. Through the 1990s, until the beginning of 2001, Portugal enjoyed strong economic growth generally above the EU average. The economy grew 4.2% in 1998, at 3.1% in 1999, and at 3.3% in 2000. Unemployment remains was at 5% in 1998, but then dropped to 4.5% in 1999 and then to 4% in 2000. Even as the growth slowed to 2.2% in 2001, unemployment in Portugal remained below most of its neighbors. at 4.2%. In 2002, growth is estimated to have slowed to 0.8% and unemployment increased to 4.7%. Inflation in Portugal has been moderate but growing, increasing from 2.4% in 1998 to 4.6% in 2000. Consumer prices rose 4.4% in 2002 and about 3.7% in 2002. The Socialist government pledged its dedication both to meeting the Maastricht monetary convergence criteria and to increasing social spending, including provision of a guaranteed minimum income. This policy bore fruit when Portugal qualified for the first round of entry into the European Monetary Union (EMU) in 1999. As of January 2002, the euro became Portugal's only official currency. The government's privatization program reduced the public sector for 7.5% of GDP and 2.6% of employment by the end of 1999 from 19.7% of GDP and 5.5% of employment in 1988.
The unofficial, or underground, economy is estimated at 20% of official GDP, about the same level as that of Spain and Italy.