Investment and exports hinder growth in 2025 and 2026
The Portuguese economy is expected to grow less than expected this year, driven by lower-than-expected investment and a decline in the share of exports in Gross Domestic Product (GDP). The Public Finance Council revised its April forecast downward and now anticipates growth of 1.9%, compared with the 2.2% forecast five months ago .
The economic growth slowdown will continue in 2026, with GDP growing 1.8%, a 0.2 percentage point decrease compared to the previous forecast, and will intensify in 2027, when a " more significant slowdown to 1.6% " is expected. This development will be "the result of the completion of the investment cycle associated with the Recovery and Resilience Plan (RRP)."
This is the second downward revision of growth for this year made by the institution led by Nazaré Cabral. In April, the CFP had already reduced growth by two tenths. The revision is in line with the most recent projections for the Portuguese economy from other entities, which indicate growth of less than 2%.
In its updated economic and budgetary outlook, the Public Finance Council (CFP) highlights that it is "conditioned by high levels of uncertainty in the global economy, exacerbated by the unpredictability of the US administration's trade policy and the escalation of geopolitical tensions."
The Council points to a "1.5% contraction in investment in the first half of the year, the worst investment performance since the pandemic, likely contributed to by the highly uncertain international context, which encourages the postponement of decisions." It also highlights the stagnation of exports, which resulted in "lower-than-expected performance in the first half of the year."
Since then, the United States and the European Union have reached an agreement, but there is considerable uncertainty regarding US trade policy. Even so, the CFP anticipates "greater dynamism" in the second half of the year.
Growth in 2025 will be fueled by consumption and investment. In the first case, the CFP points to the positive impact of the extra pension supplement and the reduction in personal income tax , particularly the early refund of the excess tax collected since the beginning of the year. In the second case, the Council warns that the "growth projection reflects the expectation of greater financial implementation of the RRP with a positive impact on public investment. If this does not materialize, this would again impact the projection."
The CFP maintains its medium-term growth estimate—1.8% per year—but issues another warning to shipping. This forecast "is based on productivity growth and positive migration balances. The absence of these two factors would penalize potential growth."
The Public Finance Council also projects employment growth of 1.5%, but at a pace that will slow until 2029 due to demographic conditions. The inflation rate is expected to stabilize around 2%, after falling to 2.3% in 2025.
The Council maintains the perspective of a return to budget deficits from 2026 onwards , after another year of balanced budget in 2025.
This cycle will continue throughout the projection horizon: a 0.6% deficit in 2026 and 2027, 0.7% in 2028, and 0.8% of GDP in 2029. This estimate reflects the impact of permanent measures on the expenditure side, which will increase, and on the revenue side, which will result in a decrease. The measures were approved in 2024 and 2025 with the aim of improving the incomes of families, young people, pensioners, and businesses. There is also the impact of salary increases for some groups in the public sector.
The macroeconomic scenario outlined for these forecasts is based on unchanged policies that assume the continuation of economic and budgetary policies. Other promised measures that will worsen the balance are excluded from these calculations, such as increased defense spending and the additional cut in corporate income tax (IRC), which has not yet been approved.
On the expenditure side, the Solidarity Supplement for the Elderly (CSI) deserves special attention, for which a commitment to converge to €870 per month was announced at the end of the legislative term. At the end of this period, spending on this supplement could skyrocket to €1.093 billion in 2029, a 90% increase compared to the projected expenditure for 2025.
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