As Portugal heads to a new election, a cloud is hanging over its export-led economy

CACILHAS, PORTUGAL - SEPTEMBER 30: Portuguese Prime Minister Antonio Costa meets supporters along Rua Cândido dos Reis as he campaigns ahead of the legislative election.

Horacio Villalobos | Corbis News | Getty Images

Economists are questioning how long Portugal's economic recovery will last with a new political cycle about to begin.

Portugal — often described as somewhat of a success story in the euro zone after embarking on deep austerity measures in the wake of the sovereign debt crisis — has enjoyed growth rates above the region's average for the last two years. However, its recent economic achievement is largely on the back of higher export levels — something that could become a problem given the ongoing trade disputes worldwide.

Portugal "is more exposed (to global trade) than before the crisis," Ana Andrade, analyst at the Economist Intelligence Unit, told CNBC over the phone Wednesday.

"The share of exports has grown. Portugal is (now) more integrated in the global trade system," she said.

In 2010, one year prior to requesting financial assistance from the International Monetary Fund (IMF) and the EU, Portugal exported about 37.3 billion euros ($40.88 billion). Since then, exports have increased almost every year, reaching about 58 billion euros in 2018, according to preliminary data. Portuguese exports accounted for more than 40% of the country's growth rate in 2018 compared to almost 30% in 2010.

"Whilst the Portuguese economy is projected to grow faster than that of the euro zone as a whole, a sharper than expected global and European downturn would expose the persistent underlying macroeconomic imbalances," Michiel van der Veen, an economist at RaboResearch, said in an email.

His forecasts point to a growth rate of 1.7% in 2019 and 1.2% in 2020. Portugal grew 2.8% in 2017 and 2.1% in 2018.

Why does it matter?

Portuguese voters are heading to the polls Sunday. Opinion polls show that the ruling Socialist party is likely to be re-elected, but the real question is whether it will get enough support for an outright majority.

"It will depend on what kind of government gets formed, but I would expect a substantial degree of policy continuity in the absence of economic shocks," Antonio Barroso, managing director at research firm Teneo, told CNBC via email, when asked about what a Socialist-led government will mean for economic policy.

Antonio Costa, the Socialist leader and current prime minister, has vowed to keep reducing the country's public debt. This grew substantially in the wake of the debt crisis, reaching a peak of 130% of its GDP (gross domestic product) in 2014.

Costa's program says the aim is to bring the current 120% of debt to GDP "closer to 100% of GDP by the end of the next mandate" in 2023.

"To meet fiscal targets Costa will be dependent on continuing economic growth," van der Veen from RaboResearch said.

"However, economic growth may find it hard to maintain momentum as the U.S.-China trade war gets into full swing and the euro area economy slows," he explained.

A clear picture of the results should emerge by 10 p.m. London time on Sunday.

Portugal's main index is up by about 3% year-to-date.

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