Portugal’s Labour Market Drives 2025 Economy of the Year

Portugal’s ascent to The Economist’s top spot for 2025 underlines a labour market full of energy and promise—yet it also raises fresh questions about inclusivity and long-term resilience. As former PS leader António José Seguro highlights, the “dynamism of the labour market” was instrumental in securing the title of Economy of the Year.

Quick Facts for Portuguese Readers

• Employment at record highs: Over 5.33 M people working by Q3 2025.

• Unemployment at two-decade lows: 5.9% in Q2, down from 6.6% in Q1.

• Growing sectors: Services (+123k), tech (AI, cloud, cybersecurity), renewables.

• Policy shifts: From a €820 to an €870 minimum wage, new banco de horas, reforms under "Trabalho XXI".

A New Crown for the Portuguese Economy

When The Economist asked, “Which economy did best in 2025?”, Portugal leapt ahead. Beyond GDP growth and tame inflation, the magazine singled out the vibrant labour market as a cornerstone of this achievement. For residents, this isn’t just a trophy: it signals improved job prospects, stronger wage growth, and a more resilient fiscal footing.

Inside the Surge: Employment and Unemployment Trends

Earlier this year, the National Statistics Institute (INE) recorded 5.18 M employed in Q1, rising to 5.33 M by Q3—the highest since 1983. Simultaneously, the unemployment rate slid from 6.6% in Q1 to 5.9% in Q2, then 5.8% in Q3. Eurostat corroborates this momentum, noting Portugal as one of the EU’s fastest-growing job markets in early 2025. Such figures translate to roughly 329,500 people without work—a drop of 36,000 in just three months.

Sectoral Drivers: From Lisbon Suites to Évora’s Turbines

Several industries have propelled this labour revival:

• Hospitality: A record influx of visitors pushed average monthly gross wages in Lisbon hotels to around €1,400, up 10% year-on-year.

• Technology: AI, cloud computing and cybersecurity firms have hired aggressively, often offering above-market salaries to attract scarce talent.

• Renewables: The Porto–Évora corridor has boomed with wind and solar projects, creating thousands of specialized roles.

Such diversity underscores the strength of Portugal’s service exports, where digital and green sectors now account for a growing share of jobs.

Underpinning Forces: Policy, Investment and Migration

Experts point to a confluence of factors behind the labour market’s vitality:

EU Recovery Funds: The Plan of Recovery and Resilience (PRR) financed major construction and digital infrastructure, fueling demand for skilled workers.

Digitalisation Initiatives: Government and private-sector programs have sped up company adoption of new technologies, demanding more IT professionals.

Positive Net Migration: Inflows of foreign workers have added fresh talent, helping to offset demographic decline.

The OECD forecasts 1.9% real GDP growth for 2025, buoyed by decisive labour reforms and rising consumer spending.

Policy Shifts and the "Trabalho XXI" Agenda

Recent reforms aim to modernize the Código do Trabalho:

• Minimum Wage: Upped to €870 in January 2025.

• Banco de Horas: New individual and collective time-bank options, capped at 50h/week and 150h/year.

• Platform Workers: Legal clarifications for delivery and ride-hailing drivers now presume an employment contract if certain criteria are met.

• Telework Rights: Mandatory expense reimbursements and flexible location changes at worker request.

While the government hails these moves as vital to boosting competitiveness, unions warn of a "civilisational rollback" that may weaken worker protections. Business associations, for their part, see a workable foundation that still needs fine-tuning.

Balancing Promise with Persistent Worries

Despite the upbeat narrative, challenges linger:

• Youth Unemployment: At 18.1%, it remains nearly three times the national average.

• Skill Mismatches: Construction, manufacturing and certain service roles report vacancies even as other sectors face a surplus of candidates.

• Sectoral Dependence: Heavy reliance on tourism and external demand leaves Portugal vulnerable to global shocks.

Critics ask whether the macro numbers translate into everyday security. For many, rising rents and the cost of living offset wage gains, especially in Lisbon and Porto.

Voices from the Political Front

António José Seguro lauds The Economist’s recognition, calling it validation of years of policy focus on job creation. Prime Minister Luís Montenegro argues that labour law flexibility is crucial “while markets are calm.” On the other side, the General Confederation of Portuguese Workers (CGTP) calls for more robust controls to ensure reforms don’t erode social rights.

What’s Next for Portuguese Workers?

As 2026 approaches, the key indicators to watch include: wage negotiations under collective bargaining, the impact of AI on recruitment practices, and any further tweaks to the Código do Trabalho. For households, the hope is that fewer jobless days, better-paid positions and more stable contracts will finally translate into a sharper sense of security and opportunity.

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