Portugal public capital loss creates 1.4 percent GDP growth drag

Portugal's real public capital stock peaked at 242.6 billion international dollars in 2013 before falling to a trough of 210.4 billion in 2024.

Over the same period, public capital relative to gross domestic product dropped from 77.2 percent to 53.8 percent.

Gross public investment collapsed after the euro area sovereign debt crisis, falling to 1.55 percent of GDP in 2016, a level insufficient to cover physical asset depreciation.

While European Union funds and Recovery and Resilience Plan spending are projected to push public investment to 4.33 percent of GDP in 2026, the capital stock in 2027 will remain 9.2 percent below its 2013 peak.

Using a calibrated production framework, Miguel Faria-e-Castro calculates that the capital erosion creates an output and labor productivity gap between 0.7 and 5.3 percent in 2026, with a central estimate of 1.4 percent.

This shortfall translates into an average growth drag of 0.11 percentage points annually from 2013 to 2026.

Furthermore, planned infrastructure projects totaling 11.3 billion euros, alongside mega-projects like the new Lisbon airport, will only slow rather than reverse the declining capital-to-GDP ratio through 2035.