In the final quarter of 2024, Portugal’s economy exhibited a notable upswing, defying earlier forecasts of stagnation. Key economic indicators, including retail sales, card spending, and car sales, surged by 11.9% year-on-year during this period, signalling a robust recovery in consumer confidence and spending.
The Bank of Portugal’s composite indicators, updated through November, reflect this positive trajectory. They suggest an acceleration in overall economic activity growth to 1.3% in Q4, up from 1.2% in Q3, and an increase in private consumption growth to 2.8% from 2.4%.
This economic resurgence is further corroborated by the European Commission’s Autumn 2024 Economic Forecast, which projects a gradual rebound in Portugal’s economy. The forecast anticipates GDP growth rates of 1.7% in 2024, 1.9% in 2025, and 2.1% in 2026, driven by domestic demand, particularly private consumption and investment.
The International Monetary Fund (IMF) offers an even more optimistic outlook, forecasting Portuguese GDP growth of 1.9% in 2024 and 2.3% in 2025. These projections surpass those of the Portuguese government, which estimates growth at 1.8% for 2024 and 2.1% for 2025.
Despite these positive developments, the Bank of Portugal has expressed caution regarding the sustainability of public expenditure. In its December 2024 bulletin, the bank noted that public spending increased by 10.8% in 2024, leading to a revision of the 2025 budget forecast from a surplus to a slight deficit of 0.1% of GDP. Governor Mário Centeno emphasized the need for prudent fiscal management to maintain economic stability.
Inflation rates have also shown favourable trends, aligning closely with the European Central Bank’s target. The European Commission’s forecast projects inflation to decrease from 2.6% in 2024 to 2.1% in 2025 and further to 1.9% in 2026, indicating a stabilizing economic environment.
The labour market remains resilient, with the unemployment rate expected to decline marginally from 6.4% in 2024 to 6.3% in 2025 and 6.2% in 2026. Employment growth is projected to moderate, yet the employment rate is anticipated to remain at a historically high level, supported by positive net migration flows.
Portugal’s public debt-to-GDP ratio is on a downward trajectory, projected to decrease from 95.7% in 2024 to 90.5% by 2026. This decline is attributed to sustained primary balance surpluses and favourable growth-interest rate differentials, reflecting the government’s commitment to fiscal responsibility.
The latter part of 2024 has been marked by a significant improvement in Portugal’s economic landscape. Enhanced consumer spending, controlled inflation, and a steady labour market contribute to a positive outlook for the nation’s economy. Nevertheless, fiscal prudence remains essential to ensure the sustainability of this growth trajectory.
