Portugal Wins Double Credit Upgrade, Offering Expats Stability—For Now

Portugal’s public finances have impressed the big three rating agencies once again, pushing the country into the select group of euro-area sovereigns carrying an single-A or higher badge from all of them. That seal of approval is already feeding a new surge of investment inquiries—and giving many foreign residents a fresh sense of security—although economists still warn that deep-rooted structural issues could blunt the good news if left unattended.

A president eager to spread the good word

Standing before television cameras last week, President Marcelo Rebelo de Sousa declared that the domestic economy is “no caminho certo”—on the right path. He was referring not to a far-off projection but to two very concrete milestones: Fitch’s jump from A- to A on 12 September and Standard & Poor’s leapfrog to A+ just a fortnight earlier. The head of state framed the twin upgrades as proof that the fiscal discipline imposed since the trauma of the 2011-2014 troika bailout has finally paid off. Diplomats travelling with the President say he used the same talking points in recent meetings with U.S. fund managers and Gulf sovereign wealth officials, positioning Portugal as “Europe’s reliable outpost” for capital looking for political stability and euro-denominated returns.

Why the agencies are handing out gold stars

Each agency leaned on slightly different metrics, but their press releases share three recurring themes. First, there is the precipitous fall in the public-debt ratio—from 134% of GDP in 2020 to barely 96% today. Second comes the expectation of tiny budget deficits—or even small surpluses—through 2028, a rarity inside the euro area. Third is what Fitch calls Portugal’s “crescimento resiliente,” a growth pattern powered by exports of machinery, pharmaceuticals and green energy equipment rather than solely by tourism. Moody’s, which opted to keep its grade at A3 with a stable outlook last May, nonetheless praised Lisbon’s “prudence” and suggested an upgrade is only a matter of time if the downward debt trajectory continues.

The data driving the optimism

Fresh figures from the Instituto Nacional de Estatística show GDP expanding 1.9% year-on-year in Q2, rebounding from a tepid first quarter. Unemployment has slipped to 5.9%, the lowest outside pandemic distortions, while core inflation is hovering around 2.5%—well below the euro-area average. Banco de Portugal, typically conservative, still sees full-year growth of 1.6% and only a 0.1% budget deficit. For expatriates paid in foreign currency, the combination of robust job creation and tame prices translates into a purchasing-power edge that is getting harder to find elsewhere in Western Europe.

Warning lights beneath the dashboard

Strip away the headline numbers, however, and the same independent economists who applauded the debt reduction caution that Portugal’s productivity remains sluggish. Real output per worker trails the EU mean by more than 15%, and private investment is stuck around 19% of GDP, when 22% is considered a healthier level. The housing market, a magnet for digital nomads and golden-visa applicants alike, is another pressure point. Mortgage rates have cooled only marginally, construction lags demand, and think tanks worry that a spike in family indebtedness could pressure banks if employment softens. Climate-related risks—from wildfires in the interior to rising Atlantic sea levels—are also now creeping into lender stress tests, a nuance foreign buyers should note.

What it all means for foreign residents

For those working remotely from Porto’s tech hubs or running guesthouses in the Algarve, an A-plus sovereign stamp generally pushes down government borrowing costs, which in turn can propagate to cheaper corporate loans and, eventually, consumer credit. The new ratings also broaden the pool of institutional investors willing to buy Portuguese debt, strengthening the euro zone’s southern flank and, by extension, the single currency. That said, the same success story is fuelling a fresh bout of euro appreciation, denting the disposable income of newcomers bringing dollars or pounds. On the living-cost front, inflation below 3% is welcome, yet rents in Lisbon and Cascais are still climbing faster than wages, underscoring the importance of locking in long leases or exploring interior regions such as Évora, where supply is growing thanks to public-private regeneration schemes.

Risks on the horizon

External shocks remain the wild card. Geopolitical flare-ups in Ukraine and the Middle East are already disrupting Portugal’s export order book, especially in machinery bound for German assembly lines. At home, the next legislative session promises a tricky dance among centrist and smaller nationalist parties, raising the spectre of budget stalemates. Rating analysts insist that any reversal of the debt-to-GDP decline or a sudden jump in contingent liabilities—say, from a bank rescue—could quickly halt the upgrade cycle. For now, though, most believe Lisbon has enough fiscal muscle and EU recovery-fund cash to muddle through moderate turbulence.

Bottom line for would-be movers

In practical terms, the recent upgrades reinforce Portugal’s image as Southern Europe’s safe harbour, making it easier for banks to price mortgages and for start-ups to tap venture capital. Still, newcomers should temper short-term enthusiasm with long-term realism: productivity bottlenecks, housing shortages and external shocks remain unresolved. The good news is that authorities are well aware of the pitfalls; the challenge will be turning tidy spreadsheets into tangible reforms that lift wages and spur innovation. For expatriates willing to ride that wave—and navigate the quirks of saudade and bureaucracy—the macro backdrop has rarely looked more reassuring.