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1939-1945 War, tungsten, poor harvests and two recessions
The country chose neutrality in the Second World War and sold essential ore to the war effort on both sides of the conflict. There was record growth in foreign trade and it was once again crop yields that shaped the business cycles. But the restrictions imposed by the war did not pass the country by. 
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1939-1945 War, tungsten, poor harvests and two recessions

In 1939, the world was plunged into one of the broadest and most dramatic conflicts in the history of mankind. With the military operations focused mainly on European soil and the seas of the Pacific, the Second World War had a global economic impact.

Portugal maintained military neutrality from the outset, which contributed to an apparent paradox: the country grew strongly during the Second World War, with the real GDP increasing between 19% and 30% from 1940 to 1944, partly driven by tungsten exports to the warring powers on both sides. The sale of this metal abroad brought a historic trade surplus in 1942.

Later, in 1944, this source of economic growth was closed off by the embargo on tungsten exports, imposed on the country by strong international pressure. This fact coincided with the longest drought on record in mainland Portugal, between 1943 and 1946. It was basically the joint effect of these two crises that gave rise to the 1944-45 recession.

The country’s economic sector was still heavily reliant on agriculture and harvests were decisive for the business cycle.

Aggregate real GDP according to two series

The inevitable war economy

Portuguese neutrality during the Second World War contributed to reducing the impact of the conflict inside its borders, and even to gains in international trade; even so, the crisis was intensely felt.

Between 1939 and 1945, there were major obstacles to the import of consumer goods and investments, which were essential to the national economy. 

Fuel imports were particularly affected and maritime transport largely interrupted, affecting all supply chains.

Other raw materials became scarce and their prices skyrocketed on international markets. Their import became subject to prior government authorisation and the purchase of cars and luxury goods from abroad was suspended.

At the same time, measures were put in place to contain exports of essential goods, such as tin, tar, certain chemicals, butter and cheese.

The shortage of goods affected living conditions in the country and the authorities launched a rationing policy in an attempt to cushion the effect.  

Fuel rationing was particularly hard felt. From the summer of 1941, vehicle movement and refuelling was prohibited for three days of the week. Other everyday consumer goods, such as cod, olive oil, soap, oil and sugar were rationed, using a system of quarterly coupons.

At the same time, the authorities set administratively controlled prices on products like milk and cod. 

These measures, typical of a war economy, were intensified as the conflict advanced. Between 1942 and 1945, the country was to see rationing of electricity, gas and coal. In the final months of the war, a quarter of trains stood idle due to a lack of fuel.

The difficult living conditions led to an outbreak of social and labour unrest. Between late 1942 and early 1943, there are records of public transport strikes and strikes in the industrial belts of Lisbon, Almada-Barreiro, and in São João da Madeira and Silves. After the war ended, rationing was gradually lifted. In November 1945, the press reported that supplies had returned to normal and that petrol prices were falling.




The rise in prices of imported goods in a context of war led to a worsening of external deficits when the contribution made by tungsten exports ended.

The prolonged dependence on the land

The country's economy was still profoundly dependent on agriculture. As in previous decades, the decisive impact for business cycles came from this sector. 

In 1940, a fall in olive production - a poor harvest year - coincided with a bad year for grapes, caused by late rains and some pests. The falls were substantial compared to the previous years: 54% in olive oil and 32% in wine. 

The same adverse weather conditions also had an impact on the wheat harvest, which fell 50% compared to the previous year. Oat, rye and fava bean harvests also recorded falls of 74%, 25% and 50%, respectively.

The agricultural crisis determined the first recession during this period, dated between 1939 and 1940.

The agricultural policy response to this situation was to increase wheat production subsidies and facilitate lines of credit for mechanising the production process. 

From autumn 1943, most of mainland Portugal suffered a drought that affected some harvests in 1944 and caused a more severe and widespread decline in 1945.

Portugal stopped exporting tungsten in 1944, giving rise to another recession. At the same time, the public investments made in 1945 contributed to making this a short recession. The economy was to hit rock bottom that year, after which a new period of growth began.

Wine Cycle

In an economy heavily dependent on agriculture, the evolution of crops drove economic cycles. The recessions of 1940 and 1945 had a strong contribution from wine production.

The unusual impact of tungsten

In Portugal, the Second World War period is associated with the economic importance of tungsten, which saw a historic boom between 1941 and 1944. Of major importance to the war industry, tungsten was used in the metal alloys in artillery in order to increase the resistance of these materials to temperature variations.

In January 1942, the first official supply contract was signed with Germany, for the sale of 2,800 tonnes of tungsten a year. Months later, in September, a trade agreement was made with the Allies, for a quantity of 4000 tonnes/year.

Up to then, tungsten had been of little significance in Portuguese exports, but in 1942 it was being exported at an average price 32 times higher than in 1938.

Between 1939 and 1944, Portugal was responsible for 10.5% of all the international trade in tungsten and was by far the largest European producer, representing almost 40% of national exports in terms of value.

It was thanks to this raw material that 1941-43 was a historic exception in Portuguese foreign trade due to its balance of trade surpluses and Portugal’s role as creditor to the United Kingdom. 

In July 1940, Banco de Portugal and the Bank of England agreed that Portugal would give unlimited credit and a grace period until the end of the war for British purchases of Portuguese goods. The balance in 1945 was around 80 million pounds sterling.

Had it not been for tungsten, the Portuguese balance of trade would probably have seen a worsening of its negative balance.


Portuguese tungsten exports

“Boom” of tungsten. The advantage of neutrality in the War Portuguese tungsten exports

The international recession was the first test of an economy integrated into the world economy.
Professor of Economics at Nova SBE
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Recessions of the period 1939-1945 by José Tavares, professor of Economics at Nova SBE