Portugal posts 9.3% drop in registered unemployment but productivity lags behind 2000 levels
Portugal's registered unemployment fell by 27,915 people in August compared with the same month last year, a year-on-year decline of 9.3% that brings the total number of jobseekers to 273,723, according to the Institute for Employment and Vocational Training (Instituto do Emprego e Formação Profissional, IEFP). The monthly figures, however, show a different trend: 4,623 more people were registered in August than in July, marking the second consecutive monthly rise after five months of steady declines.
The IEFP notes that these jobseekers represent 68.5% of all 399,500 employment requests on file. The year-on-year drop was driven primarily by those seeking new employment (-24,277), people registered for less than 12 months (-14,522), and workers over 25 (-23,387).
Regional and sectoral divides in the labour market
All regions of Portugal saw unemployment fall compared to August 2025, with the North recording the steepest drop at 14.9%, followed by Madeira (-10.5%) and the Açores (-7%). On a monthly basis, however, the picture shifted: the Centre region posted a 3.3% increase and Lisboa e Vale do Tejo rose 2%.
By professional group, the sharpest decline came among agricultural workers and qualified farmers, fishers and forestry workers (-22.3%), though this group accounts for just 2% of total unemployment. Other significant falls included qualified industry, construction and craft workers (-14.8%), machine operators and assembly workers (-14.2%), personal services, security and sales workers (-11.2%), and unskilled workers (-9.9%).
One category moved against the tide: unemployment rose 8.3% among legislators, senior officials and executive managers, who represent 3.4% of the total.
Lay-off numbers signal mixed recovery
The number of workers in 'lay-off' arrangements with wage compensation stood at 4,460 in August, a 1.7% drop from the same month last year, according to the Directorate-General for Coordination and Planning (Direção-Geral de Coordenação e Planeamento) of the Ministry of Labour, Solidarity and Social Security.
Behind the headline figure lies a divergence. The regime for reduced working hours fell 42% year-on-year to 1,435 people, while temporary contract suspensions rose 46.7% to 3,025. Compared with July, reduced hours fell 14.2% but suspensions climbed 44.9%.
The 'lay-off' mechanism allows companies to temporarily reduce hours or suspend contracts due to market, structural or technological reasons, or serious disruptions to normal activity. In August, 221 employers accessed the scheme, down 109 from a year earlier.
Public finances strengthen as debt and deficit retreat
Portugal recorded a budget surplus of 0.5% of GDP in the first half of 2026, the National Statistics Institute (Instituto Nacional de Estatística, INE) reported. In the second quarter alone, the surplus reached €1,325 million, or 1.6% of GDP, down slightly from 1.7% in the same period of 2025. Total revenue rose 6.9% while expenditure increased 7%.
The public debt ratio fell to 89.2% of GDP in 2025, down from 93% the previous year, according to the INE's second notification under the Excessive Deficit Procedure. The Government projects it will reach 87.5% of GDP in 2026.
Finance Minister Joaquim Miranda Sarmino said last week he remains confident of achieving a positive budget balance "relatively close to zero" for the full year, with a return to small surpluses expected in 2027.
Tax burden edges higher
Despite improving public accounts, the tax burden rose to 35.3% of GDP in 2025, up 0.3 percentage points from the previous year, according to INE data. Tax and social security revenues grew 6.8% in nominal terms to €108.8 billion, outpacing nominal GDP growth of 6%.
The Government has introduced several tax measures for 2026, including reductions in IRS rates across several income brackets, an update to tax thresholds of 3.51%, and an increase in the minimum existence threshold to €12,880 annually. Productivity bonuses, profit-sharing and balance-sheet bonuses are now exempt from IRS up to 6% of base annual salary, provided employers meet certain salary increase requirements.
The productivity puzzle
Behind the record employment numbers lies a persistent structural challenge. A report from Business Roundtable Portugal titled "Comparar para Crescer" found that labour productivity per hour worked stood at just 66.9% of the EU average in 2025, below the 67.6% recorded in 2000. Portugal has fallen from 17th to 24th place among the 27 member states.
The economy now employs more than five million people, representing an employment rate of 79.6% — above the EU average of 76.1% and close to full employment.
The BRP report identifies four structural blockages: chronic underinvestment by both public and private sectors; job creation concentrated in low value-added, low-wage sectors; a business landscape dominated by small-scale companies; and high context costs including bureaucracy and legal uncertainty.
More than 60% of the 680,000 jobs created between 2011 and 2024 had an average gross value added of just €31,700 annually, well below the overall average of €40,400, the study found.
Household debt reaches record growth
Total debt across families, companies and the state fell to €887.6 billion in July, with the public sector accounting for most of the €8.3 billion decline from June, according to the Bank of Portugal (Banco de Portugal). The drop resulted from the repayment of long-term government bonds, particularly a €9.3 billion Treasury bond, partially offset by increased investment in savings certificates.
Private sector borrowing rose €2.4 billion to €501.5 billion. Household debt grew €1.6 billion, with mortgage lending contributing €1.2 billion. Year-on-year, household debt expanded 10% — the steepest rise since the series began in December 2008. Private corporate debt grew 4.4%.
Job vacancies continue to rise
Unfilled job postings reached 19,248 at the end of August, up 2.7% from July and 2.6% from August 2025, the IEFP reported. The sustained need for workers alongside unemployment figures above 270,000 points to a continued mismatch between available skills and employer demands.
For residents, the data presents a complex picture: more people in work, a strengthening public ledger, and tax relief on the horizon — but wages and productivity constrained by the types of jobs being created, and household borrowing growing at record rates even as the state pays down its own debts.
