Portugal's Deteriorating Trade Deficit and Its Implications for Foreign Investors

Portugal's trade deficit has widened to alarming levels in 2025, raising concerns for foreign investors navigating the country's export-dependent economy. According to Trading Economics, the deficit reached €3.293 billion in July 2025, a 55% increase compared to €2.12 billion in July 2024. This deterioration is driven by an 11.3% decline in exports, particularly in chemical products to Germany and the U.S., while imports rose 2.8%, fueled by industrial supplies and transport equipment. For foreign investors, this imbalance underscores both systemic risks and emerging opportunities in key sectors.

Structural Risks in Export-Dependent Sectors

Portugal's export sector remains vulnerable to global market volatility, with chemical and industrial supplies accounting for a significant portion of its trade. In July 2025, chemical exports to Germany and the U.S. plummeted by 46.4% and 37.1%, respectively, due to reduced demand and supply chain disruptions. While transport equipment exports rose 17.8%, this growth was insufficient to offset the broader decline, exposing the fragility of Portugal's export basket.

Historical context reveals a persistent trade deficit, averaging -€663.86 million from 1950 to 2025. The OECD, in its OECD Economic Outlook, warned that rising trade barriers and policy uncertainty could further strain growth, particularly for sectors reliant on cross-border trade OECD Economic Outlook. For foreign investors, this highlights the risk of overexposure to industries with limited diversification, such as chemicals and industrial goods. Additionally, Portugal's critical infrastructure-partially owned by Chinese state enterprises-raises concerns about geopolitical risks and regulatory scrutiny, according to the International Trade Administration International Trade Administration.

Opportunities in Renewable Energy and Lithium

Amid these challenges, Portugal's renewable energy sector presents a compelling counterpoint. The country achieved 80% renewable electricity generation in July 2025, a milestone driven by solar, wind, and energy storage projects. International firms like Siemens Gamesa and Enercon have established manufacturing plants for wind turbine components, while government auctions and regulatory frameworks aim to accelerate infrastructure development, according to AICEP AICEP. Foreign investors can leverage Portugal's Golden Visa program to channel capital into these sectors, aligning with the nation's goal of 85% renewable electricity by 2030, as noted in the OECD Economic Outlook.

Another emerging opportunity lies in lithium production. Portugal ranks eighth globally in lithium reserves, positioning it as a key player in battery production and refining, according to the International Trade Administration. With the European Union prioritizing green technology, demand for lithium is expected to surge, offering foreign investors a foothold in a strategically vital industry.

Policy Environment and FDI Attractiveness

Portugal's business-friendly environment has historically attracted foreign direct investment (FDI), with the U.S. contributing 19% of total investments in 2022, per the International Trade Administration. However, challenges such as bureaucratic hurdles, underdeveloped infrastructure, and political fragmentation persist, as outlined by AICEP. The government has initiated reforms to address these issues, including streamlining regulated professions and reducing red tape. For investors, the key will be balancing short-term risks-such as the Q1 2025 economic contraction-with long-term gains in sectors like renewables and lithium.

Conclusion

Portugal's deteriorating trade deficit signals a critical juncture for foreign investors. While export-dependent sectors face heightened risks from global market fluctuations and policy uncertainty, the renewable energy and lithium industries offer robust opportunities. Investors must carefully assess sector-specific vulnerabilities while capitalizing on Portugal's strategic initiatives to transition toward a green economy. As the Bank of Portugal projects moderate growth of 1.6% in 2025 and 2.2% in 2026, the path forward will require a nuanced approach to risk management and sector diversification.