Portugal’s 2025 Growth Tops EU, Boosting Wages and Mortgage Relief

The Portugal National Statistics Institute (INE) has put an official stamp on 2025 GDP data, confirming the economy expanded 1.9 % last year—a performance that, while a hair short of Lisbon’s own target, still outpaced the European Union average and steadied the job market for Portuguese households.

Why This Matters

• Above-EU growth: Portugal’s 1.9 % rise beats the bloc’s 1.4 % estimate, reinforcing the country’s reputation as a Southern European outperformer.

• Pay-packet support: A stronger labour market and higher minimum wage fed household spending, the single biggest driver of last year’s expansion.

• Mortgage reprieve: Slower GDP does not mean recession; it does, however, make an early ECB rate cut more likely—good news for anyone on a variable-rate loan.

• Budget wiggle room: Slightly softer growth trims tax receipts and could force the Portugal Finance Ministry to juggle 2026 spending pledges.

Where the Growth Came From

Household consumption did the heavy lifting. Private spending accelerated on the back of solid job creation, a fresh bump in pensions, and the summer’s IRS tax refund wave. Construction cranes also swung back into action, thanks in part to belated disbursements from the EU-funded Recovery and Resilience Plan (PRR). By contrast, factories felt the chill of weaker global orders; net exports dragged as goods sales abroad slowed faster than imports. One quirky footnote: the temporary shutdown of Galp’s Sines refinery slashed fuel imports in Q4, briefly flipping external demand into positive territory.

Government & Market Reaction

The Portugal Cabinet had pencilled in a clean 2 % for 2025. Missing the mark by 0.1 points prompted little soul-searching in Lisbon; officials instead highlighted Portugal’s top-of-class shout-out from The Economist for overall economic resilience. The Bank of Portugal spent the year chasing the number—first 2.3 %, then 1.6 %, finally 1.9 %—before declaring the landing “orderly.” Business lobbies were less sanguine. CIP president Armindo Monteiro warned that shrinking export books point to a “harder slog” in 2026 unless policy clarity improves.

How Portugal Stacks Up Against Europe

With Germany flirting with stagnation and France locked below 1 %, Portugal’s 1.9 % looks respectable. The European Commission sees the country pushing ahead to 2.2 % in 2026, still half a percentage point faster than the expected EU mean. That momentum, analysts say, hinges on two swing factors: tourism’s staying power after record-breaking 2025 arrivals and the speed at which PRR projects—worth nearly €16 B—move from paperwork to shovels.

What This Means for Residents

• Jobs & Wages: Low unemployment should keep wage growth in positive real-terms territory—welcome relief after two years of bruising inflation.

• Housing Costs: A softer external environment increases odds that the European Central Bank cuts rates before summer. Every 25-basis-point trim knocks roughly €15 off a €150,000 mortgage’s monthly payment.

• Tax Outlook: Slower growth marginally narrows fiscal space. The promised further IRS bracket adjustment is still on the table, but new spending programmes could face delays.

• Energy Bills: The refinery maintenance that curbed fuel imports also eased wholesale prices; households may see smaller jumps in petrol and gas bills heading into spring.

Looking Ahead: 2026 and Beyond

Forecasters are cautiously optimistic. Tourism bookings for early 2026 are running 8 % above last year, and construction order books remain thick, especially in public-housing retrofits financed by EU grants. Risks linger: a prolonged manufacturing slump in Germany would dent Portuguese exports, and any fresh spike in energy prices would re-inflate household costs. For now, though, Portugal starts 2026 with a growth rate that beats its neighbours and a policy toolkit—tax tweaks, PRR cash, and potential ECB easing—capable of cushioning most foreseeable bumps.