Economic Outline

Economic Indicators

After achieving several years of sustained growth, economic output in Portugal fell sharply following the outbreak of the COVID-19 pandemic. Nevertheless, the country recovered quickly, growing by 6.7% of GDP in 2022 and 2.3% the following year. According to official government estimates, economic activity grew by 1.9 % in 2024, driven by private consumption and a strong rise in employee remuneration. As exports and imports increased at similar rates, services, especially tourism, remained key growth drivers despite some slowdown, while manufacturing struggled with weak external demand, and construction remained largely stable. GDP growth is projected to hover around 2.3 % in 2025 and 2.0 % in 2026 (IMF), driven by domestic demand. Private consumption will benefit from real wage growth, while the accelerated implementation of the Recovery and Resilience Plan is expected to boost investment. Lower interest rates should further support consumption and investment.

Portugal's budget surplus dropped by 95% in 2024 after Prime Minister Luís Montenegro's government cut taxes and increased wages and pensions to stimulate the economy. Spending grew by 9.2%, outpacing a 2.5% rise in revenue, leaving a surplus of EUR 354 million (USD 369 million), down from EUR 7.6 billion in 2023, according to preliminary finance ministry data. Portugal's fiscal stance is expected to remain expansionary. The general government surplus is projected at around 0.4% of GDP in 2025 and 0.3% in 2026 (EU Commission). In 2025, this decline will be driven by tax cuts, adjustments to the youth income tax regime, and higher public wages. Public investment will continue expanding, supported by the RRP, while the net cost of energy-support measures is set to drop to 0.1% of GDP.  Portugal's government debt to 94.4% of GDP by end-2024, from 99.1% at end-2023. Driven by high primary surpluses and sustained growth, the debt ratio is expected to decrease to 89.8% this year and 86.2% in 2026 (IMF). According to INE, the average inflation rate (HICP) stood at 2.7% in 2024. The services index stayed well above the headline rate, driven by higher accommodation and catering prices. Energy prices rose in early 2024 due to higher electricity network fees but declined in Q3. Non-energy industrial goods and unprocessed food steadily contributed to slowing inflation. Despite monthly fluctuations, inflation is expected to keep declining, aligning with euro area trends. However, with real wages rising, core inflation (excluding energy and food) is projected to slow at a more gradual pace.

Total employment rose by 1.5 % in 2024, with the number of employees growing an impressive 25 % since 2013 (INE). The working-age population continued to benefit from positive net migration, while the employment rate stayed at a record high. Employment growth is expected to slow further, but the unemployment rate should continue to decline slightly. Despite low overall job vacancy rates, sectors like manufacturing and construction face tight hiring conditions and skill shortages, which are likely to keep wage pressures high. Overall, the unemployment rate was estimated at 6.5% in 2024, from 6.4% one year earlier (IMF). Overall, Portuguese GDP per capita (PPP) was estimated at USD 51,257 in 2024 (IMF), still 20.7% below the EU’s average. According to the latest figures from INE, 16.6% of the population is at risk of poverty, corresponding to the proportion of inhabitants with an annual net equivalent monetary income below EUR 7,588.

Any Comment About This Content? Report It to Us.