Portugal’s Growth Outlook and Macroeconomic Stability

Portugal’s economy has demonstrated notable resilience in recent years, supported by strong employment, moderating inflation, and improving public finances. According to the latest OECD Economic Survey of Portugal, the country is expected to continue outperforming both the wider OECD and euro area averages over the coming years, even as structural challenges remain.

The OECD forecasts Portugal’s GDP to grow by 2.2% in 2026 and 1.8% in 2027, driven largely by robust domestic demand. Inflation is also expected to ease further, declining from 2.2% in 2025 to 2.0% by 2027, reinforcing a more stable macroeconomic environment for households and businesses alike. Employment levels remain at historic highs, providing an important pillar of support for economic activity.

Public finances have strengthened significantly since the COVID-19 pandemic. Public debt stood at 93.6% of GDP in 2024 and is projected to fall to 84.9% by 2027. Presenting the survey in Lisbon, OECD Director of Country Studies Luiz de Mello praised Portugal’s economic performance and fiscal consolidation efforts, while emphasizing the importance of improving public spending efficiency. Such improvements would help reduce debt further while still accommodating growth-enhancing investments in infrastructure, education, and research, as well as addressing the fiscal pressures associated with an ageing population.

Structural Reforms and Long-Term Competitiveness

Despite these positive trends, the report underscores the need for continued structural reforms to sustain long-term growth and improvements in living standards. Over the next two decades, Portugal’s working-age population is expected to decline by around 16%, posing challenges for labor supply and public finances. At the same time, labor productivity remains below the OECD average, highlighting the importance of policies that boost productivity and workforce skills.

Raising employment participation is identified as a key priority. While the effective retirement age has increased in line with life expectancy, the OECD suggests further measures to extend working lives, including targeted reskilling initiatives, enhanced career counselling, more flexible work arrangements, and a gradual tightening of early retirement pathways. Reducing tax expenditures and cutting administrative red tape could also help improve competitiveness, particularly in the services sector.

Housing, Climate Policy, and Future Challenges

Housing affordability is another area of concern. Long-standing supply constraints, driven by high construction costs and slow permitting processes, have limited the response to rising demand. The OECD recommends shifting part of the tax burden away from transaction taxes toward recurrent property taxes, strengthening taxation of underused housing, and increasing investment in social housing, alongside targeted support for low-income households.

Finally, the climate transition presents additional challenges. Transport emissions account for roughly one-third of Portugal’s total greenhouse gas emissions, and the OECD highlights the need for stronger carbon pricing, expanded public transport, and investment in charging infrastructure. Improved coordination across municipalities and broader private insurance coverage against climate risks are also seen as essential to support effective climate adaptation.

Overall, the OECD survey paints a picture of an economy on solid footing, while emphasizing that continued reform will be critical to securing sustainable, long-term growth.