The Portuguese economy is expected to grow by 2% in 2025, accelerating to 2.3% in 2026, before slowing down to 1.7% and 1.8% in 2027 and 2028 respectively.
In an international environment marked by trade tensions, the appreciation of the euro and high uncertainty, the Portuguese economy will continue to grow robustly. Easing financial conditions, an increase in European funds and an expansionary fiscal policy have mitigated the impact of external shocks.
Over the projection horizon, GDP will grow at an average pace close to that observed in 2020–24, with domestic demand being more relevant and a lower contribution from exports.
The labour market remains robust, with employment at record highs and low unemployment. The reduction in immigration flows will limit employment and activity over the coming years.
Inflation will drop to 2.2% in 2025 and 2.1% in 2026, only to stabilise at 2% in the following two years, in line with the euro area outlook.
Risks to this projection, which are predominantly negative to activity and balanced for inflation, are essentially of an external nature: heightened trade and geopolitical tensions, the impact of tariffs and abrupt correction of financial markets. Among the domestic risks, there is a possibility that investment could be lower than projected, should the total financing of the RRP not be executed. On the contrary, European spending on defence and infrastructure could stimulate growth.
The December issue of the Economic Bulletin includes projections for public accounts. The budget balance is projected to be balanced in 2025, with deficits projected in the following years: 0.4% of GDP in 2026, 0.9% in 2027 and 1% in 2028. The improvements in the forecast compared to June reflect, among other factors, new policy measures, the change in RRP loan assumptions and the impact of the revision of the macroeconomic scenario on tax revenue. These projections include only those measures that have been approved by parliament or defined in detail by the government and are likely to be approved as required by the Eurosystem rules.
The deteriorating path of the budget balance is mainly explained by tax declines and permanent expenditure increases in recent years. The behaviour of tax revenue has mitigated this path, which may present a challenge for public accounts in the event of an economic downturn.
Public debt will remain on a downward path, decreasing from 93.6% of GDP in 2024, to 88.2% of GDP in 2025 and to 79.5% of GDP in 2028.
The Portuguese economy has been resilient, but adverse demographic developments increase the importance of productivity as a key to the well-being of the population. Promoting higher productivity growth requires a better allocation of resources, labour and product markets that function well, and continued reliance on the skills of the Portuguese population.
