I am no expert in Portugal, but I can at least point you to the relevant literature. The state of the art on the economic history of Portugal is Nuno Palma and Jaime Reis (2019) "From Convergence to Divergence: Portuguese Economic Growth, 1527–1850" in the JEH. ( https://www.cambridge.org/core/journals/journal-of-economic-history/article/from-convergence-to-divergence-portuguese-economic-growth-15271850/A4399F08A84AEA596BAEB6F78F7F0A22/core-reader ) They do state up front in that article that they are not answering the big "why" question, but rather offering a decomposition of the proximate sources of growth. They argue that the decline begins in the 1750s, which is at least in line with the role of the 1755 earthquake, though their GDP data don't really take a nosedive until the 1780s. What is clear, is that during the 1650-1750 period, Portuguese incomes were reasonably high (though not so high as England or Holland) and steadily growing. However, unlike in England, this was not accompanied by a substantial structural shift away from agriculture into urban industries and services. Whatever happened to end the era of growth, the reversal was quite dramatic: by the late 19th century, Portugal was as poor as it had been in the 1500s.

Palma and Reis have tackled the question of the contribution of empire in a previous article, along with Leonor Freire Costa, (2015) "The great escape? The contribution of the empire to Portugal's economic growth, 1500–1800" in the EREH. (https://academic.oup.com/ereh/article/19/1/1/2754564) The argument here is that Portugal extracted considerable wealth from its colonies, but that the economy of metropolitan Portugal was not qualitatively transformed by international trade. The extra income was enough to keep Portuguese incomes increasing despite population increase (economic growth temporarily outrunning Malthusian pressures), but without a transformation in the domestic economy, this could not persist forever. I would be tempted to argue myself that the transformations of the Napoleonic era (including the loss of Brazil) closed the door on that sort of early modern colonial system, but it is important to note that the decline in Portuguese incomes predates this by several decades, so this cannot be the initial cause of the decline.

Anyone tempted to float an "institutions" argument should probably also check out Henriques and Palma (2019) "Comparative European Institutions and the Little Divergence, 1385-1800," summarized here (https://voxeu.org/article/comparative-european-institutions-and-little-divergence-1385-1800) showing that the Iberian countries were, if anything, more representative with more constrained government than the English until the 17th century.

The remaining mysteries seem to be: Why did Portugal not see the same kind of positive feedback loop among trade, empire, urbanisation that characterised England and the Netherlands, despite having high trade? And why was the decline of Portugal so pronounced from 1780? To venture one possibility: This is the end of the Pombaline period. Not to support a great man view of history, but the reorganisation of both the economy and the polity following the decline of the Marquis of Pombal was substantial, including the dissolution of monopolies and the re-establishment of aristocratic and ecclesiastical privileges. Perhaps the proximate causes of the decline lie somewhere in there?