According to the December Economic Bulletin from the Bank of Portugal, economic activity will have grown in our country by 2% in 2025, with an expansion of 2.3% in 2026, 1.7% in 2027 and 1.8% in 2028 being possible, values higher than the estimated average for the EU.
0 GDPpc is expected to increase by 1.8% in 2026, 1.4% in 2027 and 1.6% in 2028, the unemployment rate is expected to be around 6.3% between 2026 and 2028 and the inflation rate will stabilize around 2% between 2026/and 2028.
This is a globally positive evolution, and it is also certain that, in terms of Public Finances, a deficit of 0.4% of GDP could occur in 2026, 0.9% in 2027 and 1% in 2028, which would not prevent the possibility of the Public Debt/GDP ratio continuing to decline, reaching a value of approximately 80% in 2028.
It is, however, clear that if we consider adjustments resulting from the situation resulting from the Ukrainian conflict, developments could be less positive. The increase in household disposable income will, however, be less intense in 2026-2028, causing a slowdown in private consumption and a reduction in the savings rate. In fact, families’ disposable income in real terms is expected to increase by 1.3% in 2026, 2.7% in 2027 and 1.5% in 2028.
GFCF-Gross Fixed Capital Formation could increase by 6% in 2026, slowing down considerably in 2027 (which should mean that the European economy would not become as dynamic as desired), to experience more significant growth in 2028.
As for the export sector, it faces a context of uncertainty, due to the increases registered in terms of customs barriers, as well as the pressures registered with the appreciation of the euro and the increases in the unit costs of the labor productive factor in recent years.
In any case, the Current and Capital Account surplus should be around 3% of GDP, on average, between 2025 and 2026, reflecting the impact of PRR funds, with a reduction expected to 1.9% in 2027-2028, also allowing for a slowdown in exports and maintenance of the current level of intensity of imports.
The rate of growth in wages per worker slowed down in 2025, after an increase of 8.4% in 2023-2024, with an increase of 4.1% in 2026 and 3.7% in 2027 and 2028 being expected, bringing the wage variation, in real terms, closer to the expected variations in the productivity of the labor productive factor.
But, returning to Public Finances, it is worth highlighting that an increase in expenditure in conjunction with measures aimed at reducing taxes will always translate into an increase in net expenditure, an indicator that is relevant for European fiscal supervision.
According to Banco de Portugal estimates, net expenditure is expected to grow, on average, 5.7%/year in the period 2025-2028, a value higher than the limit of 3.6% established by the Council of the European Union.
Even for 2025, there should have been a growth of 6.3%, with the limit having been exceeded, in cumulative terms, in the period 2024-2025.
It will be important to highlight that the aforementioned calculations do not consider the national derogation clause activated by Portugal, and the projections for 2025-2028 do not incorporate the additional expenditure effort in the area of Defense.
In conclusion, the trajectory of the Portuguese economy in recent years has not been, overall, negative, but not only has there been a lack of capacity to undertake structural reforms in Health, Education and Justice, but from now on, it will no longer be possible to continue to significantly expand expenditure, while simultaneously reducing taxes in a situation of war in Europe.
And this is where the populist threat arises, always in favor of increasing spending and reducing taxes.
Only through an understanding between the country’s responsible democratic forces will it be possible to resolve this problem, carrying out some urgent reforms over the next two or three years.
No more, no less…
Economist and university professor
Write without applying the new Spelling Agreement
Leave a Reply