Portugal's economic growth has been resilient over the past few years, while employment rates are historically high and public debt has fallen. Structural reforms such as further strengthening public finances, boosting productivity, improving employment and skills, and advancing the climate transition can achieve stronger and sustainable improvements in living standards, according to a new OECD report.
The latest OECD Economic Survey of Portugal forecasts that GDP growth will continue to outpace both the OECD and the euro area at 2.2% in 2026 and 1.8% in 2027, supported by robust domestic demand. Inflation is projected to moderate further from 2.2% in 2025 to 2.0% in 2027.
Public finances have improved. Public debt, at 93.6% of GDP in 2024, has fallen since the COVID-19 pandemic and is expected to continue to decline to 84.9% of GDP in 2027.
"Portugal's strong economic performance and efforts to consolidate public finances are commendable," OECD Director of Country Studies Luiz de Mello said, presenting the Survey in Lisbon alongside Portugal's Deputy Finance Minister José Maria Brandão de Brito. "Improving public spending efficiency is key to further bringing down debt relative to GDP over the medium term, and to accommodating growth-enhancing investments in infrastructure, education and research, as well as spending pressures from population ageing."
Portugal's working-age population is set to shrink by 16% in the coming two decades, while labour productivity, at about 80% of the OECD average in 2023, has room to increase and sustain future growth. Further raising employment would also sustain growth and contribute to healthy public finances.
The effective retirement age has been rising in line with increases in life expectancy. But more can be done to extend working lives, including by further supporting older people to remain in the labour market through targeted reskilling, additional counselling and more flexible work arrangements, as well as gradually tightening early retirement options.
Reducing tax expenditures, including value-added tax exemptions, would lower distortions in the tax system. Cutting red tape would help firms become more dynamic and competitive, notably in services.
Housing affordability challenges reflect long-standing weaknesses that have limited supply responses to higher housing prices. High construction costs and slow, complex permitting procedures are holding back investment in new housing. Gradually shifting some of the burden from transaction taxes towards regular property taxes and strengthening the taxation of underused housing would help bring more homes onto the market. More investment in social housing will be needed, while providing more targeted support to low-income groups.
Efforts are needed to reduce greenhouse gas emissions and reach climate targets. Harmonising and strengthening carbon prices would help speed up emissions cuts and should be accompanied by targeted support to vulnerable groups. More investments in public transport and charging infrastructure will be key to cut transport emissions, which now account for a third of total emissions. Broadening private insurance coverage against climate risks and improving co-ordination and capacities across municipalities would further support climate change adaptation.
