LISBON — THOUSANDS of shiny new cars and the buzz of construction bear witness to the fact that Portugal no longer wears the tag ``poor man of Western Europe.'' That now belongs to Greece. But as modernization has swept the country and Portugal has moved up the ranks to become the fastest growing economy in the European Community (EC), questions still linger about how long the boom will last.
``The economy is dynamic,'' says Portugal's central bank governor, Jos'e Tavares Moreira. ``Last year's 5.4 percent growth was more than we expected and the highest this decade.''
But Portugal still ranks far behind nations such as tiny Luxembourg or West Germany, Europe's economic powerhouse, on the basis of per capita wealth. A high inflation rate, huge government deficit, and outmoded infrastructure may also impede further investment.
Nearly half a century of leadership by a stagnating right-wing dictatorship ended in 1974 with a leftist revolution that brought with it political and economic uncertainty.
But Portugal's entry into the EC four years ago and stability under the center-right government of economist Premier Anibal Cavaco Silva has triggered a recovery following a similar boom in neighboring Spain.
Foreign investment has been pouring in, a sweeping privatization drive is invigorating the two local stock exchanges, and unemployment has dropped below 5 percent, among the lowest in the EC.
The current account deficit, the widest measure of trade, fell last year to $550 million and was more than offset by foreign investment in the country.
But a stubborn inflation rate - it was an annual 12.8 percent in June - is among the EC's highest and casts a shadow on the government's average target of 9.5 percent to 10.5 percent this year.
Another danger looming is the nation's budget deficit, which accounts for about 7 percent of gross domestic product, the gauge of domestic economic growth. After years of boosting state spending to fuel speedy growth and development, the government is now trying to cut the gap.
In April, Finance Minister Miguel Beleza vowed to cut 40 billion escudos ($280 million) from state spending budgeted for this year and said further cuts could follow.
But with a general election still a year away, political pressure is building up on the government to increase spending to woo voters.