Rating affirmation
S&P Global Ratings affirmed Portugal’s A+/A‑1 long‑ and short‑term foreign and local currency sovereign credit ratings on 29 August 2026, maintaining a positive outlook. The agency highlighted that higher energy prices stemming from disruptions at the Strait of Hormuz will have a moderate impact on the Portuguese economy in 2026, given the country’s low energy intensity, resilient tourism season, and accelerated capital expenditure under the Next Generation EU (NGEU) programme.
Economic outlook
S&P projects Portugal’s real GDP to grow by 1.7 % in 2026, supported by the accelerated execution of NGEU‑funded projects that are reaching their deadline this year and by robust private consumption amid a tight labour market. Portugal’s exposure to energy‑price volatility is mitigated by a low energy intensity of 64 kg of oil equivalent per €1,000 and an increasing share of renewables in its energy mix, estimated at roughly 36 %. The localized nature of fuel supply, especially in aviation, reduces operational risks for the tourism sector, which has proven resilient to the shock.
Fiscal position
Net general government debt continues its downward trajectory despite emergency energy support and weather‑related reconstruction costs that may cause brief budget deficits in 2026 and 2027. S&P projects net general government debt to decline to 75 % of GDP by 2029, down from 85 % in 2025. This trajectory, driven by prudent fiscal policy, provides headroom to absorb long‑term structural pressures such as rising defence requirements and an ageing population. Portugal recorded a budget surplus of 0.7 % of GDP in 2025, doubling its 0.3 % target, thanks to buoyant tax receipts, a resilient labour market and strong wage growth. For 2026, the agency expects a slight deterioration to a deficit of 0.2 % of GDP, reflecting the fiscal impact of support measures for Atlantic storm Kristin (0.4 % of GDP) and energy support measures (0.1 % of GDP). Beyond 2026, the budget balance is expected to remain broadly balanced as emergency measures wind down and the intense capex cycle driven by the NGEU phase‑out subsides.
Labour market and banking sector
Unemployment fell to 5.6 % in June 2026, the lowest level since 2002, and S&P expects it to remain structurally low, averaging approximately 6 % over the 2025‑2028 period. Foreign workers accounted for more than 80 % of the post‑pandemic rise in registered employees, helping to alleviate shortages in tourism, construction and healthcare. Portuguese banks are projected to maintain solid profitability in 2026, with an average domestic return on equity of about 13 % and a cost‑to‑income ratio of roughly 43 %.
This article was generated with the support of AI and reviewed by an editor.