This is an unprecedented situation since the arrival of democracy in 1974. Portugal is on track to achieve a budget surplus for the second consecutive year in 2025, and this should also be the case next year, according to forecasts presented by the minority right-wing executive on Thursday, October 9.
In detail, the government aims to generate public surpluses of 0.3% of gross domestic product (GDP) in 2025 and 0.1% next year. Portugal’s public debt must continue to decline, from 93.6% of GDP last year to 90.2% in 2025 and then to 87.8% next year.
It is evident that the Portuguese State collects more revenue than it spends. However, he plans to increase retirement pensions and lower taxes. A situation completely opposite to that of France. Consequence: Portugal borrows at a lower price than France (3.09% compared to 3.5% for 10-year bonds).
At the same time, Portugal is expected to record economic growth of 2% this year (more than double that of France), then 2.3% in 2026, following a 2.1% GDP increase last year, while the unemployment rate is expected to fall to 6% next year.
Growth and rigor
But then, what is the recipe? This result is the result of a strategy “that prioritizes both the growth and recovery of public accounts”, according to the Rexecode institute, which recalls that Portugal’s public accounts were, at the beginning of the 2010s, in a very worrying situation.
After the financial crisis, which degenerated into a debt crisis in the southern eurozone countries, Portugal’s public deficit increased to 9.1% of GDP in 2010. This required the activation of a rescue plan by the European Central Bank (ECB) and the International Monetary Fund (IMF), in exchange for an austerity cure.
On the menu: privatization of the “Turkish EDF” and some public banks, increase in VAT, income tax, strict reduction in the number of civil servants.
Starting in 2015, with the return of the left to power, “these measures were complemented by new taxes on the products and real estate assets of the richest, as well as measures to support demand, particularly in favor of the most modest,” the Rexecode institute, with a liberal tradition, points out in a note.
Attractive for foreign investments
In the first phase, the economy contracted sharply, accelerating the massive departure of young people abroad, before starting to grow again. “The period 2017-2019 is considered the ‘Portuguese economic miracle’‘(…), possible thanks to a greater attractiveness for foreign investors and tourists,” explains the Treasury Department in a study.
Numerous tax incentives have been offered to companies, also attracted by low labor costs. In fact, the minimum wage is the lowest in Western Europe (1,015 euros in 2025, compared to 1,802 euros in France according to Eurostat). European funds have also helped the Portuguese economy, especially after the Covid-19 pandemic.
This method has especially worked with French companies and individuals. In 2022, France was the second largest direct foreign investor (17 billion euros), after Spain, observes the local media Eco. 750 French companies employ 60,000 people there, such as Somfy, a world leader in connected homes, which opened a factory north of Porto. Many French retirees have also settled in Portugal, attracted by the now reduced tax incentives.
Real estate crisis and emigration
The other side of the coin is that this influx of retirees and tourists has contributed to aggravating the deep real estate crisis that the country, like Spain, is experiencing. Since 2015, house prices have increased by 124%, compared to an average increase of 53% in the EU, according to Eurostat. And they continue to increase (+16% in the first quarter of 2025), especially because demand – inflated by foreign investors – is greater than supply.
As in most European countries, this sharp increase mainly benefited the 10% of households that own half of the real estate assets, Forbes notes. The difficulties in accessing housing contribute to another great Portuguese weakness: the emigration of young people. A third of people born in Portugal, between 15 and 39 years old, live outside the country. An old phenomenon that the authorities are trying to stop through tax cuts.
Despite its budget surpluses, the center-right government does not have an absolute majority in Parliament. Last year’s early elections were marked by the strong advance of the far-right party Chega (“Basta”), which has become the second political force in the country, ahead of the Socialist Party. The executive led by Luis Montenegro must obtain the abstention of one of the two parties, while he will no longer be able to dissolve the Assembly at the end of his mandate, next March.
Source: BFM TV
