Against a global backdrop still marked by uncertainty, inflation pressures, and geopolitical tensions, the Portuguese economy is set to grow by 2.3 percent in 2025, outpacing the eurozone average. More importantly, it’s doing so while maintaining financial stability, reducing inflation, and investing in a more productive future.

This year’s economic performance builds on solid momentum from late 2024. A particularly strong fourth quarter saw private consumption surge due to a substantial boost in household income, driven by tax adjustments and extraordinary pension supplements. These measures injected €2 billion into family budgets, showing a powerful shot of confidence and spending power for millions of Portuguese.

Though that spike will ease slightly in 2025, with some temporary reductions in available income and more moderate consumption in the first half of the year, growth is expected to remain positive and steady throughout. The forecast sees GDP expanding by 2.1 percent in 2026 and 1.7 percent in 2027, with a natural slowdown reflecting the end of extraordinary funding programs like the EU’s Recovery and Resilience Plan (PRR).

Yet beyond short-term dynamics, what’s most promising is Portugal’s longer-term economic evolution. The country is gradually shifting from a consumption-led recovery to one rooted in investment and exports. Public investment is expected to grow significantly over 2025–26, powered by EU funds. Meanwhile, business investment is slowly rebounding, supported by improved financial conditions and healthier balance sheets.

Labour market

Portugal’s labour market continues to perform remarkably well. After record employment levels in 2024, jobs are projected to keep growing, albeit at a more moderate pace, while unemployment stays steady at 6.4 percent. Notably, immigration and rising participation rates have helped fuel this expansion, showing that Portugal remains an attractive destination for talent and opportunity.

Inflation, a concern across Europe, is also coming under control. It’s projected to fall to 2.3 percent this year and stabilise around 2 percent by 2026. This progress reflects easing global price pressures, a disciplined fiscal stance, and a rebound in family savings, which reached 12 percent of disposable income in 2024 and was well above the pre-pandemic average.

Still, challenges remain. Global tensions, especially potential U.S. tariffs on European imports, could dampen Portugal’s export momentum. Rising protectionism and policy unpredictability might hit key sectors and erode confidence. But even in the worst-case scenarios modelled by the Bank of Portugal, the overall economic impact remains contained and manageable.

Meanwhile, deep structural shifts are underway. The country is improving its capital stock, particularly in technology and intellectual property, and gradually catching up with its European peers in terms of productivity. Digitalisation, higher education levels, and a more competitive business environment are all contributing to this transformation.

One long-term hurdle stands out: demographics. With an aging population and a shrinking labour force, Portugal will need to invest even more in innovation, skills, and efficiency to sustain growth. The good news? Productivity per worker is rising, and many sectors are already showing signs of modern, knowledge-driven output.

Portugal’s current trajectory is not just encouraging, but it’s a sign of economic maturity. The country is managing short-term risks while laying the groundwork for sustainable, inclusive growth. From balanced public finances to a stable labour market, from smart investment in infrastructure to a focus on future-ready industries, Portugal is positioning itself as a resilient and forward-thinking economy in a rapidly changing world.

For businesses, policymakers, and citizens alike, this is a moment of cautious optimism and opportunity.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes