Portugal Forecasts 2% Growth and 0.3% Surplus in 2025, Easing Loan Costs

Portugal is heading into the second half of the decade with a government forecast of roughly 2 % GDP growth and a 0.3 % budget surplus for 2025. Supporters hail the numbers as proof that the public-finance clean-up of the last decade is bearing fruit, while sceptics warn that external headwinds and slower exports could derail the optimism.

Snapshot at a Glance

• 2 % real GDP expansion pencilled in by the executive

• 0.3 % primary surplus after a sequence of deficit reductions

• Income-tax cuts and higher minimum wages still go ahead, albeit gradually

• European Commission, IMF and OECD peg growth closer to 1.9 % and the balance nearer to 0–0.2 %

• Tourism and domestic consumption remain the main engines, but exports are losing steam

Why People in Portugal Should Care

Many families are still navigating post-pandemic inflation, climbing mortgage rates and an uneven labour market. A stronger public balance sheet could lower the state’s refinancing costs and trickle down into cheaper credit for households and firms. On the flip side, the same fiscal discipline leaves less room for sudden stimulus if the economy slows. “We are threading a narrow path between prudence and growth,” warns Susana Peralta, economist at Nova SBE. If the numbers hold, Lisbon could become one of the few euro-area capitals delivering both growth above 1 % and a surplus in the same year.

The Government’s Math: How 2 % and 0.3 % Come Together

Prime-minister Luís Montenegro laid out the projection during a January debate in the Assembly. The calculation rests on several building blocks:

Domestic demand bouncing back once the 2024 energy-price shock fades.

Income-tax brackets adjusted by 4.62 %, putting more cash in consumers’ pockets.

A fresh €870 minimum wage, which boosts low-end wages without large budgetary costs.

Net interest payments falling as public-debt-to-GDP drops toward 93 %.

Continued inflows from the EU Recovery and Resilience Plan, scheduled to peak in 2025.Treasury officials argue these levers generate an extra €1.2 B in revenue and about 0.4 p.p. of GDP growth, enough to offset the tax cuts and land the 0.3 % surplus.

Brussels, Washington and Paris: A More Cautious Choir

External institutions are politely sceptical. The European Commission, the IMF and the OECD all converge on a 1.9 % growth figure and a fiscal outcome closer to balance than surplus. Their caution stems from:

• Weaker German and French demand, depressing Portuguese goods exports.

• A flattening tourism boom once pent-up post-Covid travel is spent.

• The risk that higher interest rates nibble at private investment.Still, even the conservative scenarios show Portugal beating the euro-area average on growth and keeping debt on a downward trajectory.

Inside the 2025 Budget: Give-and-Take Measures

The OE2025 is crafted around a principle the finance minister calls “growth with guardrails.” Key provisions include:

• IRS cuts targeted at young professionals—eligibility extended up to 35 years.

• Corporate-tax rate shaved to 20 %, and to 16 % for the first €50 000 among SMEs.

• A 200 % deduction on payroll costs for firms granting raises of at least 4.7 %.

• Increased health-care spending to €16.8 B, up 9 % year-on-year.

• A pilot productivity-bonus exemption on the first 6 % of annual pay.The apparent contradiction—cutting taxes while targeting a surplus—is resolved through an aggressive clamp-down on tax evasion, delaying some public-investment tranches and a push to sell state-owned real-estate assets.

Early 2025 Data: Mixed Signals but No Panic

Preliminary numbers from INE and the Banco de Portugal reveal:

• Q1 GDP up 1.6 % year-on-year but down 0.3 % quarter-on-quarter.

• Q2 rebound of 0.7 % q-o-q and 1.9 % y-o-y.

• Private consumption picked up once energy prices cooled, contributing 0.8 p.p. to growth.

• Goods exports rose only 1.5 % in real terms; services fared slightly better at 3.2 %.

• Tourist nights advanced 4.2 %, keeping Algarve and Madeira hotels near full occupancy.The pattern suggests the economy can still hit the 2 % target if the second-half rally materialises, but there is little margin for error.

Clouds on the Horizon

Economists list four risks that could knock a few tenths off growth:

A resurgence of inflation forcing the ECB into more rate hikes.

Supply-chain hiccups in the auto sector, a top Portuguese export.

Slower-than-planned PRR disbursements, delaying public-works multipliers.

A sharper-than-expected drop in German industrial output, Portugal’s main external market.Each 0.1 p.p. shortfall in GDP usually erodes about €200 M in tax revenue, putting the surplus at stake.

What Comes Next

• Late-March: Final 2025 budget parameters reach Eurostat for verification.

• April-June: Collective-bargaining season decides whether the 4.7 % wage-rise assumption sticks.

• July: First half-year deficit data traditionally signal whether a full-year surplus is plausible.

• October: The Banco de Portugal autumn forecast will be the last major health-check before year-end.For residents and businesses alike, the key takeaway is that Portugal’s fiscal debate has shifted from how to close a gap to how large the cushion should be. Whether the cushion ends up at 0.0 % or 0.3 % may sound arcane, but it influences borrowing costs, public-service budgets and the room politicians have to act when the next shock arrives.