The decision was justified, due to the “small budget surpluses” that Portugal should achieve between 2025 and 2028 and, thus, reduce debt “faster than most other European countries”. The agency estimates the surplus was 0.5 percent of GDP in 2024 and forecasts 0.2 percent by 2026-7. Debt is expected to fall to 84 percent of GDP by 2028, compared to 96 percent in 2024. In an uncertain geopolitical environment, S&P also believes in reducing risks to the country's external position. Even with the tariffs that the Trump administration is threatening to approve, “Portugal should register moderate surpluses in the current account”, notes the agency.

In a trade war scenario, the main risk to the Portuguese economy would be “secondary, through ties with the most affected economies, such as Germany”. The pressure to increase military spending, on the other hand, leaves no reservations at S&P, which says it is “calm” with Portugal’s political history of maintaining a “descending trajectory of public debt and external deleveraging”.

S&P also forecasts real GDP growth of around 2 percent between 2025 and 2028, higher than the 1.2 percent estimate for the euro area, thanks to a faster implementation of the Recovery and Resilience Plan (RRP). Still, the note points out, “the full absorption by 2026” of the RRP funds is “unlikely and the scope for an extension is limited” given the European Union's new priorities in defense and trade.

On the political front, the agency considers it “unlikely” that early elections will be called before July 2025, the last month in which Marcelo Rebelo Sousa can dissolve Parliament, due to the proximity of the 2026 presidential elections. “The implementation of key policies will probably be smooth, at least until 2026,” indicates S&P.

Robust market

The labour market remains “robust”, with the unemployment rate expected to remain “low”, averaging 6.3 percent between 2025 and 2028. For this year, S&P still projects solid profitability for Portuguese banks, although “lower than 2023-2024”.

In August last year, S&P had maintained the sovereign debt rating at A-, with a positive outlook. But in March 2024, S&P raised Portugal's rating from BBB+ to A- and marked the country's return, thirteen years later, to the 'A' level in all major agencies.

The Canadian agency DBRS was the first of the year to evaluate Portugal, raising the country's rating to A (high), with a stable outlook, on January 17. Fitch is expected to decide on March 14 and Moody's on May 16.