Continued economic growth expected for Portugal

Portugal’s economy is expected to continue outpacing growth of the euro area over the next two years, according to the latest economic survey from the Organisation for Economic Co-operation and Development (OECD).

The report says the country has delivered a solid economic performance in recent years, helped by steady consumption and a gradual recovery following the pandemic.

It stated: “Portugal’s economy has been outpacing the euro area average since 2022.

“The unemployment rate has declined, while public debt relative to GDP fell significantly.

“Rising disbursements of the Recovery and Resilience Funds [funding from the EU to assist in post-pandemic recovery] in 2026, continuous employment gains, and recent structural reforms are all expected to support growth.”

It reiterated the need for investment as a key driving force to support further growth.

Gross domestic product (GDP) is forecast to expand by 2.2% in 2026 and 1.8% in 2027, supported largely by strong domestic demand.

Inflation is also projected to ease slightly, falling from 2.2% in 2025 to around 2% percent by 2027.

Public finances have strengthened significantly since the Covid crisis.

Government debt stood at 93.6% of GDP in 2024 and is expected to decline further to 84.9% by 2027, reflecting improved fiscal management and steady economic activity.

Presenting the survey in Lisbon alongside Portugal’s Deputy Finance Minister José Maria Brandão de Brito, OECD Director of Country Studies, Luiz de Mello, said: “Portugal’s strong economic performance and efforts to consolidate public finances are commendable.”

He added that improving public spending efficiency would be key to further reducing debt relative to GDP over the medium term, while accommodating growth-enhancing investments in infrastructure, education, and research, and addressing spending pressures linked to population ageing.

The survey also highlights the importance of maintaining a strong labour market to support the country’s fiscal position.

Participation has improved in recent years, and the effective retirement age has risen in line with life expectancy.

The OECD noted further measures, such as targeted reskilling, additional counselling and more flexible work arrangements, could help extend working lives and support economic activity.

Housing remains an area of policy focus, as supply has struggled to keep pace with rising demand.

High construction costs and slow, complex permitting procedures have limited the pace of new development.

To encourage greater availability, the OECD suggests shifting part of the tax burden away from transaction taxes towards recurring property taxes, alongside stronger taxation of underused homes.

Increased investment in social housing, combined with more targeted support for lower-income households, is also identified as a priority.

The transition to a lower-carbon economy is another key theme of the report.

Strengthening carbon pricing could help accelerate emissions reductions, provided that targeted support is available for more vulnerable groups.

Greater investment in public transport and charging infrastructure will also be important, particularly as transport currently accounts for around one-third of total greenhouse gas emissions.

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