The application of EU ‘bazooka’ funding last year and into this year on the back of the Recovery and Resilience Plan (RRP), which essentially means public spending, should contribute to sustaining Portugal’s economy over the next 12 months.
This is according to the Francisco Manuel dos Santos Foundation Economic Cycles Data Committee, set up as part of the ‘Crises in the Portuguese Economy’ project, comprised of eight leading economists and experts led by economist Ricardo Reis.
The project makes an annual snapshot of the evolution of Portugal’s economic cycle and after analysing hundreds of sets of statistics, sifting through qualitative evaluations, and discussing the risks of recession.
An economic depression in 2026 is considered unlikely by most major economists and institutions, though a recession risk remains around 30-40%, with analysts forecasting moderate global growth but significant downside risks like sticky inflation, trade issues (tariffs), and potential AI-related economic disruptions.
While some historic cycles (like the 18-year property cycle) point to 2026 as a potential downturn year, most official forecasts lean towards slower growth rather than a deep depression, with the biggest concern being the possibility of a sharp, unexpected slowdown in consumer spending.
The foundation’s committee itself has concluded unanimously that the Portuguese economy will continue to grow in 2026 following a trend that started in 2020, ushering in 22 consecutive quarters of economic growth and expansion.
And the committee concluded that “Portugal’s economy resisted the impact of the US tariffs surprisingly well and that despite a reduction in the export of goods, economic activity did not feel the impact.”
Growth in services continued, particularly in tourism with a 10% growth in jobs.
Outlook for 2026
The committee does not anticipate a peak in economic activity in 2026, but rather foresees continued expansion, supported by several factors: 2026 is the last year for the implementation of the Recovery and Resilience Plan (PRR) funds, which translates into public expenditure and, in this way, should contribute to stimulating the economy. Consumption also continues to expand, “especially in the case of durable goods, perhaps supported by favorable economic sentiment indices”.
The increase in the number of building permits, as well as the peak in confidence indices in the sector, suggest an increase in private investment in the construction sector in 2026. The document also highlights the favourable evolution of employment, mainly supported by open-ended contracts and self-employment.
“As in the previous year, some of the risks remain geopolitical instability and the high dependence of the Portuguese economy on tourism, which can bring unexpected bumps caused by external shocks. The difficulties of the German economy, particularly in the automotive sector, with potential repercussions on European growth. The growing tension in trade relations between Europe and China will have implications for the productive structure of the European economy,” the document reads.
