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OECD Economic Surveys

PORTUGAL 2026

Executive summary January 2026

• The economy remains resilient but structural challenges weigh on future growth • Growth is set to stabilise, but risks remain elevated • Fiscal prudence and productivity-enhancing reforms are needed to safeguard public finances • Strengthening training and activation to address population ageing and skill shortages • Tackling Portugal’s housing affordability challenge will require a comprehensive reform package • Addressing climate change requires significant investment in adaptation and mitigation

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OECD ECONOMIC SURVEYS:

PORTUGAL 2026

OECD Publishing, Paris https://doi.org/10.1787/025b3445-en

OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY . 3

THE ECONOMY REMAINS RESILIENT BUT STRUCTURAL CHALLENGES WEIGH ON FUTURE GROWTH Portugal’s economy has shown remarkable resilience in the face of global shocks, but persistent structural challenges threaten long-term growth and fiscal sustainablity. Growth reached 2.1% in 2024, public finances have strengthened, and Portugal recorded a historical current account surplus. However, labour shortages, a rapidly ageing population, housing affordability challenges, the need to maintain productivity gains, and delivering the green transition and adapting to climate risks will require sustained investment and reforms. The Portuguese economy weathered well recent global crises. Growth rebounded strongly after the successive shocks (Figure 1), while stronger public finances allowed the government to shield households and businesses from the shocks. A record high current account surplus in 2024 reflects better trade competitiveness, rising household savings and declining household and corporate debt ratios.

investment limit firms ability to scale up and innovate. These constraints risk dampening potential growth and fuelling fiscal pressures. Rapidly rising housing prices also hinder residential mobility and access to housing, especially for the young. Meeting climate targets and addressing climate risks will require significant investment in adaptation and mitigation. Structural reforms are needed to sustain growth and safeguard fiscal sustainability, amidst a challenging global landscape. Reducing the administrative burden, strengthening labour supply and skills are central. Reforms should also focus on expanding housing supply and implementing cost-effective climate policies.

Labour shortages, population ageing and weak investment during the economic and financial adjustment programme weigh on growth and productivity. The unemployment rate fell to a historic low of 6.4% in 2024, but labour shortages and subdued

Figure 1. The economy has been resilient Real GDP (Index, 2019Q4 = 100)

Germany

115

Spain

Italy

Portugal

110 105 100 95 90 85

Source: OECD Economic Outlook: Statistics and Projections (database) and updates.

2025Q3

2025Q2

2025Q1

2024Q4

2024Q3

2024Q2

2024Q1

2023Q4

2023Q3

2023Q2

2023Q1

2022Q4

2022Q3

2022Q2

2022Q1

2021Q4

2021Q3

2021Q2

2021Q1

2020Q4

2020Q3

2020Q2

2020Q1

2019Q4

4 . OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY

GROWTH IS SET TO STABILISE, BUT RISKS REMAIN ELEVATED GDP growth is projected to reach 1.9% in 2025, before reaching 2.2% in 2026 and 1.8% in 2027, supported by rising real incomes and strong internal demand, and the implementation of the Recovery and Resilience Plan (RRP) until 2026. However, trade tensions and global policy uncertainty pose significant risks to the outlook. Domestic demand will remain the main growth driver. A strong labour market and rising real incomes will sustain private consumption, as the unemployment rate stabilise at a low level, while public investment will accelerate supported by European funds, but the projected slowdown in global and European growth, rising trade barriers and an assumed 15% US tariff on Portuguese goods, including steel and autos, will weigh on exports and private investment. Inflation is expected to remain around 2.2% in 2026 and reach 2.0% in 2027 (Table 1), as wage growth remain strong and import costs raise as a result of tariffs and exchange rate effects. Downside risks due to rising geopolitical tensions and trade fragmentation are considerable. Weakerthan-expected global trade growth and disruptions in

supply chains, could directly weaken export growth. A sharp contraction in demand from major Euro-area trading partners would not only reduce exports, but also depress confidence, with knock-on effects on private consumption and business investment. The fiscal stance is accommodative, with rising public investment and higher pension and wage bill spending, while tax revenues are set to decline due to recent reductions in personal and corporate taxation The authorities should carefully consider further expansionary measures, such as corporate and age-based personal income tax cuts, that risk fueling inflation and lower fiscal space. Despite this, the primary surplus is projected to remain sizeable at 1.3% of GDP in 2026 and 1.5% in 2027, helping to keep public debt on a declining path (Table 1). Given past underinvestment

Table 1. Growth will remain resilient Annual growth rates (%, unless specified)

2024

2025

2026

2027

Gross domestic product

2.1

1.9

2.2

1.8

Private consumption

3.0

3.2

2.3

2.1

Government consumption

1.5

1.6

2.4

1.0

Gross fixed capital formation

4.2

2.5

5.0

0.4

Exports

3.1

1.1

2.2

2.5

Imports

4.8

4.3

3.6

1.9

Unemployment rate (%)

6.4

6.1

6.0

5.9

Consumer price index

2.7

2.2

2.0

Current account balance, % GDP

2.1

1.3

1.0

1.2

General government fiscal balance, % of GDP

0.5

0.1

-0.6

-0.5

General government fiscal primary balance, % of GDP

2.3

1.9

1.3

1.5

General government gross debt (Maastricht), % of GDP

93.6

90.1

87.2

84.9

Source: OECD Economic Outlook: Statistics and Projections (database).

OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY . 5

in growth-enhancing programmes and rising long-term spending pressures, the planned budgetary expansion in 2026 need to prioritise high-impact public investment and support potential growth, while maintaining a prudent medium-term fiscal path. Financial risks appear contained but require continued vigilance. Household mortgage debt

has declined, but new borrowing has increased alongside rising house prices, raising macroeconomic vulnerabilities. The central bank implemented a sectoral systemic risk buffer targeting residential real estate in 2024 and will introduce a new countercyclical capital buffer from January 2026. Continued close monitoring of household debt and timely macroprudential responses will be key to maintaining financial stability.

FISCAL PRUDENCE AND PRODUCTIVITY-ENHANCING REFORMS ARE NEEDED TO SAFEGUARD PUBLIC FINANCES Portugal has significantly reduced public debt and rebuilt some fiscal buffers over the past decade. However, sustaining this trajectory will become more difficult with population ageing, rising pension and health care costs and the need to address underinvestment in infrastructure, health care and education. To navigate these pressures without compromising growth, it is essential to maintain a prudent medium term fiscal policy while rebalancing spending towards productivityenhancing investments. Continued implementation of the Recovery and Resilience Plan offers a window of opportunity to boost potential growth. To maximize the impact of this plan, prioritising high-impact investments and accelerating execution will be key. Ageing-related spending is projected to increase rapidly in the coming two decades (Figure 2). At the same time, past underinvestment in education and infrastructure is weighing on potential growth. Rebalancing spending towards more growth-enhancing uses requires addressing the rapid rise in pension entitlements by prolonging working lives, improving the targeting of social spending and prioritising preventive and primary healthcare spending. Fiscal sustainability will also require strengthened fiscal governance to better prioritise public spending and ensure cost-effective investments. Modernising the budget framework, including the implementation of performance budgeting, is crucial to ensure an efficient use of public funds. The authorities incorporated spending reviews as part of the budget process from 2025 which could help identify inefficient spending. Accelerating the implementation of the

2015 Budget Framework Law and of new accounting standards, one of the objectives of the RRP, would further support the shift of expenditures towards more growth-enhancing uses. The system of taxes and benefits is overly complex, increasing administrative costs and reducing revenues. Tax expenditures, at 6.2% of GDP, including many reduced value-added tax rates, are not effective to support growth and equity goals. Portugal should simplify and broaden its tax system, building on the work of its new tax evaluation unit (U-TAX), to assess and gradually phase out inefficient tax expenditures in the VAT, personal and corporate income tax regimes, which could help lower tax rates. Consolidating meanstested benefits into a simplified and better-targeted system with harmonised rules, would improve take up and poverty reduction, while reducing fragmentation and administrative costs. With the working-age population set to decline over the long term, boosting productivity is essential to support fiscal sustainability and living standards. Labour productivity remains 17% below the OECD average. A significant share of employment in the

6 . OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY

Figure 2. Ageing-related spending pressures are sizeable Projected change in ageing-related costs over 2024-2044, percentage points of GDP 4 3.5 3

Public pensions Other expenditures

2.5 2 1.5 1 0.5 0

PRT

ESP

SVN

SVK

LTU

LUX

CZE

HUN

IRL

NLD

NOR

BEL

DNK

DEU

AUT

GRC

ITA

POL

FRA

EST

FIN

LVA

-1

SWE

-0.5

Note: The EU corresponds to the composition of European Union as of 2020. Other expenditures include health and long-term care and education. Source: EC (2024), The 2024 Ageing Report: Economic and Budgetary Projections for the EU Member States (2022-2070), European Commission.

business economy is concentrated in micro firms, around 40%, which often lack professional management skills and underinvest in technology and innovation. Despite generous public support, research and development has not yielded commensurate innovation outcomes. Improving productivity will require a more favourable business environment, including streamlining complex administrative processes as part of the public sector’s

digitalisation efforts. In parallel, reforming regulations in professional services and retail trade would reduce costs and improve productivity. Introducing and enforcing a permanent lobbying registry and codes of conduct on how to engage with lobbyists, as planned, would help to prevent conflict of interests and reduce corruption risks.

STRENGTHENING TRAINING AND ACTIVATION TO ADDRESS POPULATION AGEING AND SKILL SHORTAGES Labour shortages and population ageing will weigh on growth and living standards. Extending working lives, upskilling older workers, and strengthening skills policies, especially vocational and lifelong learning will be crucial. Easing labour market access for migrants and women would boost employment. Raising employment and productivity will also require raising the quality of the education and training systems and curbing the still high use of temporary contracts. Portugal’s labour market has recovered strongly from the COVID 19 shock with employment reaching record highs and unemployment near historical lows (Figure 3). Despite robust labour market performance, many firms report difficulty recruiting suitably skilled workers. Labour shortages are growing across key sectors, notably in the information and technology

activities, administrative and support activities, construction and wholesale and retail sectors, as well as in seasonal sectors. Educational attainment has increased, but field-of-study and qualification mismatches and limited alignment between training and labour market needs, lead to skill mismatches. Enrolment in initial vocational education has declined during the pandemic and the work experience of recent vocational graduates is limited. Expanding secondary

OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY . 7

Figure 3. The employment rate has increased, but the working-age population is set to shrink B. Projected increase in - the old-age dependency ratio

A. Employment rate % of the 15 - 74 years old

Germany

Spain

Italy

Percentage points, 2024 - 2044

Portugal

30 25

15 55

GRC

PRT

ESP

ITA

LVA

SVK

CZE

POL

HUN

FRA

NLD

DEU

FIN

DNK

5 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1 2023Q1 2024Q1 2025Q1 2026Q1 2027Q1

Note: Panel A: Shaded area indicates OECD projections. Panel B: The old-age dependency ratio is the ratio of the population aged 65 years and over per 100 people of working age (20 to 64 years old) The EU corresponds to the composition of European Union as of 2020. Source: OECD Economic Outlook: Statistics and Projections (database) and EC (2024), Ageing report.

vocational education and training and strengthening work-based training components, ensuring strong involvement of employer bodies, would help to better meet labour market needs. Adult skills remain low, particularly among older workers and the long-term unemployed, which make little use of lifelong learning. Though spending on active labour market policies is slightly above the

OECD average, there is room to further target activation policies towards older workers, notably by rebalancing expenditures towards training and counselling. Targeted upskilling programmes, notably for digital skills, promoting flexible work arrangements for older workers and integrating local public employment services and vocational training centres would support longer working lives.

TACKLING PORTUGAL’S HOUSING AFFORDABILITY CHALLENGE WILL REQUIRE A COMPREHENSIVE REFORM PACKAGE Many people, particularly the youth, struggle to buy a home, rent, pay off their mortgage, or move to find suitable housing or better jobs. Making housing more affordable will require a comprehensive set of reforms to increase supply, bolster residential mobility, better use the existing housing stock, and improve support for those in need. Housing supply is constrained by high barriers to construction. Regulatory burdens in the construction sector raise costs and uncertainty, slowing projects and contributing to persistently low investment despite high demand (Figure 4). Obtaining building permits takes long and approval procedures are often cumbersome and vary across municipalities, weighing particularly on smaller construction firms.

Adding to the supply challenges, the tax framework discourages housing transactions, fails to mobilise underused properties, and exacerbates inequality. While exceptions apply for young first-time buyers since 2024, property transaction taxes are generally high, which deters residential mobility and downsizing. Tax values of immovable property are outdated and municipalities rarely apply higher rates on vacant

8 . OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY

Figure 4. House prices have significantly increased Change in house price-to-income ratio, 2015 to 2024, % 60 50 40 30 20 10 0 -10 -20

PRT

KOR FIN ITA COL FRA SWE BEL LVA POL GBR SVK EU DNK LTU DEU NOR HUN JPN OECD GRC EST ESP AUT SVN IRL NZL LUX CHL AUS CZE CHE USA NLD CAN

-30

Note: The Euro area aggregate corresponds to the 20 OECD members countries of the European Union. The OECD aggregate corresponds to the simple average of the OECD countries. Variable corresponds to nominal house price divided by nominal disposable income per head. Source: OECD Affordable Housing (database).

dwellings. This reduces incentives to put underused housing into productive use. In combination with generous capital gains tax exemptions, the system favours longstanding homeowners, who have often seen large housing wealth gains, while excluding prospective buyers. Property tax reforms can help stimulate housing supply, make housing markets more dynamic, and raise revenues effectively and equitably. A small stock of social housing and poorly targeted housing allowances provide insufficient support for many low- and middle-income households. The small social housing stock, focused on very poor households, is oversubscribed and subject to long waiting lists. Meanwhile, housing allowances are

modest and often benefit high income households. As a result, many lower income households lack adequate support. Many older tenants rely on legacy rent-controlled contracts, contributing to segmentation and limited rental supply for new tenants. While current plans to expand social and affordable housing are welcome, sustained and predictable long-term funding and better targeted and higher housing allowances will be critical to meeting high needs. Housing quality additionally is often poor, undermining people’s well-being and contributing to high energy poverty as well as to emissions. More financial support is needed to boost energy renovations.

ADDRESSING CLIMATE CHANGE REQUIRES SIGNIFICANT INVESTMENT IN ADAPTATION AND MITIGATION Portugal has made significant progress in reducing greenhouse gas emissions over the last two decades, thanks largely to a rapid shift to renewable electricity. Still, to achieve its emission goals, mitigation efforts need to broaden beyond energy industries. At the same time, Portugal is increasingly vulnerable to the effects of a warming climate, including through more frequent heatwaves and wildfires. A more coordinated and well funded adaptation strategy is needed to strengthen adaptation at the local level and to mobilise private investment in risk prevention. Faster and broader decoupling is needed to meet emission goals and ensure stable energy supply.

Meeting emission goals requires sustaining the fast pace of emission reductions achieved during a period

OECD ECONOMIC SURVEY OF PORTUGAL 2026 – EXECUTIVE SUMMARY . 9

Figure 5. Reducing transport emissions and continuing the expansion of renewable energy is key to meet emission targets Share of total greenhouse gas emissions, %, 2023 or latest available

A. Transport

B. Energy industries

DEU

GRC

USA

NLD

CAN

ITA

GBR

ESP

DNK

LTU

PRT

FRA

PRT

FRA

ESP

ITA

DNK

USA

GBR

GRC

FIN

CAN

DEU

NLD

5 POL

Note: Panel A & B: A selection of OECD countries is shown. The EU corresponds to the composition of European Union as of 2020. Source: OECD Greenhouse gas emissions inventories (database).

of weak economic growth. Rapid progress in scalingup electricity production from renewable sources has helped reduce emissions, but going ahead greater efforts are needed in energy consuming sectors, notably transport and buildings (Figure 5). Meanwhile, increased reliance on intermittent sun and wind energy sources poses challenges for system flexibility that call for large investments in grid and storage capacity. Stronger and more uniform carbon price signals will be key to accelerating cost-efficient emission cuts across sectors. Nearly all carbon emissions are priced either through a carbon tax or excise taxes. However, large differences in effective emission prices across fuels and users, aggravated by sizeable fossil fuel subsidies, weaken incentives to cut emissions with the lowest abatement costs. Portugal has committed to phasing out fossil fuel subsidies by 2030, and emission prices for transport and buildings are set to rise with the EU’s ETS2. Implementing these plans to align, raise and harmonise effective emission prices across sectors would accelerate economy-wide mitigation efforts, while providing targeted support will be key to protect vulnerable groups from higher prices.

Continued progress in adaptation is needed to protect people and businesses from a warming climate. Much has been done over the last few years to improve prevention and management of natural disasters, especially wildfires. Still, while local governments play a key role in identifying risks and implementing adaptation measures, their responsibilities are not always well defined, overlap with those of other actors, and outcomes are not systematically monitored. Improving coordination and ensuring sufficient capacities would empower municipalities to pursue effective adaptation measures. Private insurance coverage is low, which entails large contingent liabilities for the public sector in the event of climate risks, and weakens incentives to prevent damages. Enlarging mandatory insurance requirements, while raising public awareness of risks, would improve risk pooling and leverage private sector capacities for a faster recovery after damages occur.

■ Main findings | ● Key recommendations ENSURING STRONG GROWTH AND SUSTAINABLE PUBLIC FINANCES ■ Portugal has achieved primary surpluses since 2022 and significantly reduced its public debt to 94.9% of GDP in 2024. The fiscal stance is set to be expansionary in 2025-26, partly due to the acceleration of the implementation of the Recovery and Resilience Plan. ● Ensure the effective and timely implementation of the Recovery and Resilience Plan by prioritising high impact public investment supporting potential growth. ■ The fiscal stance is set to be procyclical over 2025-26. Further expansionary measures could fuel inflation and lower fiscal space. ● Carefully consider any further fiscal expansionary measures. ■ Portugal has committed to maintain significant primary surpluses until 2038, which would lower public debt towards 60% of GDP. However, this will require strong efforts to maintain significant primary surpluses and there are currently no detailed plans on how to achieve these targets. Moreover, there are rising long term aging expenditures. ● Continue to ensure the implementation of the medium term fiscal strategy to reduce further public debt by enhancing spending efficiency, containing ageing-related expenditures and prioritising growth enhancing investment, while phasing out inefficient tax expenditures. ■ Population ageing is expected to increase pension expenditures, despite the link between the normal retirement age and life expectancy. Employment rates decline rapidly with age. The ratio of pension benefits to wages is projected to fall. ● Consider improving incentives for delayed retirement, including by withdrawing gradually early retirement options for the long-term unemployed, and adjusting benefit formulas to preserve adequacy and sustainability. ■ The social safety net is fragmented, and some benefits suffer from low take up. Reforms are planned to consolidate benefits. ● Consolidate means-tested benefits into a simplified and better-targeted system with harmonised rules. ■ The tax system remains complex and numerous tax expenditures reduce public revenues. While a Tax Unit has been established, the 2025 budget introduced new tax exemptions. ● Simplify the tax system and broaden the tax base by reducing inefficient tax expenditures and consider using this fiscal space to lower tax rates. ■ Competitive pressures are weak in some sectors. The OECD 2023 Product Market Regulation Indicators point at significant regulatory barriers in professional services and the retail sector. ● Lower entry barriers and streamline regulations in professional services and the retail sector. ■ Lobbying activities and potential conflict of interest are not monitored systematically. Draft laws on how Members of Parliament engage with lobbyists have been approved in July 2025. ● Approve legislation introducing a permanent lobbying registry and codes of conduct on how to engage with lobbyists, and ensure effective enforcement.

STRENGTHENING LABOUR MARKET RESILIENCE IN THE FACE OF AGEING AND SKILL SHORTAGES ■ Enrolment in vocational education has declined at the secondary level and the work experience of recent graduates remains relatively short, despite investment through the Recovery and Resilience Plan. ● Expand vocational education and training at the upper secondary level and strengthen work-based training components, ensuring strong involvement of employer bodies. ■ Long-term unemployment is high, especially among older workers. Spending on active labour market policies has increased, but funding for public employment services remains comparatively low. ● Strengthen targeted activation policies for older workers and rebalance spending towards training and counseling. ■ Flexible work and training options remain underused, while local public employment services and vocational training centres are not fully integrated. ● Support longer working lives, including by targeted upskilling, notably for digital skills, promoting flexible work arrangements and integrating local public employment services and vocational training centres.

■ Main findings | ● Key recommendations TACKLING THE HOUSING AFFORDABILITY CHALLENGE ■ Processes for obtaining building permits are often complex, lengthy and vary across municipalities. This delays housing development and discourages private investment. ● Simplify and harmonise building permitting procedures across municipalities as planned by expanding digital platforms and simplifying approval rules with clear maximum timeframes. ■ Outdated tax property values reduce revenues from recurrent property taxes, distort investment decisions and favour longtime homeowners. High transaction taxes on housing discourage downsizing and mobility. ● Gradually shift the tax burden from transactions to recurrent taxes on immovable property, including through regular updates of taxable property values to reflect market prices. ■ Many dwellings remain vacant or are used only seasonally, even in high-demand areas. Existing aggravated recurrent property tax rates have been ineffective due to limited enforcement by municipalities, outdated tax values and narrow definitions of vacant property. ● Gradually raise taxation and increase the use of aggravated rates on underutilised dwellings by updating tax values, broadening vacancy definitions, and strengthening enforcement of vacancy declarations by municipalities in high-demand areas. ■ Despite recent investments, the social rental housing stock remains small and waiting times for people in need are long and can exceed several years, particularly in urban areas. ● Expand the social rented housing stock by increasing investment, ensuring adequate funding for construction and operation, and setting targets aligned with local housing needs. ■ Housing allowances are poorly targeted, and support levels are often insufficient to allow access to adequate housing. ● Improve the targeting and adequacy of housing allowances and regularly review benefit levels to ensure they meet housing costs.

PROMOTING DECARBONISATION AND ADAPTING TO A WARMING CLIMATE ■ Despite important progress, decoupling needs to accelerate to meet 2030 targets in a growing economy. Emission prices remain uneven across fuels and sectors and fossil fuel subsidies undermine incentives to cut emissions cost-effectively. ● Gradually align and increase effective carbon prices across sectors by fully implementing the expanded EU Emission Trading System and completing the planned phase out of fossil fuel subsidies, while addressing potential impacts on vulnerable households. ■ Insurance coverage for climate-related risks, such as floods and wildfires, is low, while public-private risk sharing mechanisms are fragmented and lack a formal framework. ● Establish a formal public-private risk-sharing mechanism, for example by making property insurance for natural catastrophes compulsory for all buildings and aligning premiums with risk exposure.

OECD Economic Surveys

PORTUGAL 2026

https://oe.cd/portugal

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