Portugal was the world's richest country when its colonial empire in Asia, Africa, and South America was at its peak. Because this wealth was not used to develop domestic industrial infrastructure, however, Portugal gradually became one of western Europe's poorest countries in the 19th and 20th centuries.

Portugal’s economic standing relative to Western Europe is the result of several long-term structural and historical factors. Historically, the country endured a long dictatorship (the Estado Novo) which prioritized isolationism and hindered industrialization compared to its neighbors. Today, Portugal faces challenges such as lower productivity levels and an economy that is heavily dependent on the tourism and service sectors, which often offer lower wages than the high-tech or manufacturing hubs of Germany or the Netherlands. Additionally, the country has a significant "brain drain" where highly educated youth emigrate for higher salaries elsewhere in the EU, and it struggles with a rapidly ageing population that puts pressure on public finances. However, in 2026, the outlook is shifting; the country has become a major hub for "Digital Nomads" and tech startups, and massive EU Recovery and Resilience funds are currently being used to modernize infrastructure and transition to a green economy.