Economic experts both inside and outside of Portugal agree that 2026 will be a good year, with most signs pointing to steady growth. But much like the rest of Europe, Portugal is not immune to global turmoil, and further escalations could affect positive forecasts.
For now, the outlook is hopeful. Bank of Portugal governor Álvaro Santos Pereira set the tone in a recent interview, predicting that Portugal’s economy will “remain robust” in 2026. Inflation is expected to stay close to the 2%-mark, growth should be steady, and the country is far better prepared than it was a decade ago.
“If we compare the current economy to how it looked around 15 years ago, it is a truly incredible transformation,” Santos Pereira said, pointing to stronger banks, lower debt and a more diversified economy.
That view is backed by the OECD (Organisation for Economic Co-operation and Development), which forecasts 2.2% GDP growth in 2026, following an estimated 1.9% in 2025. While modest by historical standards, this still puts Portugal above the expected EU average.
The economic “robustness” is enabling the government – currently led by the centre-right coalition of PSD Social Democrats and CDS-PP Christian Democrats, under the name Aliança Democrática (AD) – to carry out major public investments.
Defence is receiving what national media are calling its “largest investment in 50 years”. According to Jornal de Notícias, the 2023–2034 Military Programming Law sets out a total budget of €5.6 billion for re-equipment, maintenance and modernisation of the Armed Forces – an effort the government considers unavoidable, but which opposition parties have criticised as “excessive and poorly timed”.
Portugal is also tackling its housing crisis with new parliamentary measures to make more affordable homes available.
VAT on homes sold for up to €648,000 or rented for up to €2,300 per month will drop from 23% to 6%, while income tax reductions aim to encourage landlords to place properties on the rental market.
The plan also includes a 7.5% IMT rate for non-resident buyers, with exemptions in some cases. Finance Minister Joaquim Miranda Sarmento has hinted at further measures, such as faster eviction procedures, an emergency housing fund, and quicker resolutions for disputes over inherited properties.
The government is also introducing a suite of measures aimed at boosting incomes and reducing taxes, including a €50 rise in the minimum wage to €920, IRS tax cuts and bracket adjustments, a reduction in corporate tax (IRC) to 19%, with a goal of reaching 17% by 2028, and a 2.8% increase in pensions and social benefits.
Around €2.5 billion is also earmarked for investments in the environment, energy, and water in 2026. Announcing the news in October 2025, Environment Minister Maria da Graça Carvalho said these three sectors are “pillars” of economic and social development. “All of our actions have climate change in mind, but also the growth of our economy and the well-being of our people,” the minister said.
In a controversial move, the government has also approved up to €110 million in non-repayable financial support for the British mining company Savannah Resources, which owns the Boticas mine, to develop its Barroso lithium project (see page 4), which continues to elicit fierce protests from surrounding communities. According to the company, the subsidy is backed by national funds under the European Commission’s Temporary Crisis and Transition Framework and is intended to support the project’s initial investment phase.
As The Resident went to press on Tuesday, Portugal’s investment and trade agency (AICEP)was hosting the signing of investment agreements with half a dozen companies, including Calb, Lift One, Savannah Lithium and Topsoe. Together, they plan to invest more than €3 billion in lithium projects in Portugal.
Another major move which is set to have a profound impact on the Portuguese economy is the EU-Mercosur free trade deal, signed last weekend in Paraguay. The deal, which will lower tariffs and boost trade between the two regions, was approved by most European nations last week, despite warnings from farmers – including in the Algarve (see story on page 14) – of its potential negative impacts.
Amid the wave of investments and forecasts of economic growth, there are also concerns. According to the OECD’s report, a projected slowdown in global and European growth, rising trade barriers and an assumed 15% US tariff on Portuguese goods, including steel and autos, will weigh on Portugal’s exports and private investment. Earlier, the Bank of Portugal governor had already admitted that Portugal has lost its export market share for the first time.
“It’s essential that we closely monitor what is happening with exports,” he said.
Ongoing geopolitical tensions, fuelled by US president Donald Trump’s threats to “take Greenland one way or the other” following his unilateral decision to take military action in Venezuela, are also contributing to a climate of uncertainty that could affect any economy. But one expert has suggested Portugal could actually benefit from this uncertainty.
“Portugal’s advantage increases the greater the global geopolitical uncertainty. Its location in one of the safest regions of Europe and its appeal as a place to start businesses and to live not only attract people but also economic activity, particularly from European multinationals looking to grow or reconfigure their value chains. In fact, the growth of development and competence centres of multinational companies in Portugal has been one of the drivers of economic growth,” wrote Filipe Santos, Dean of the Católica Lisbon School of Business & Economics, in an opinion piece.
He added: “I am convinced that the strengths and opportunities in the Portuguese economy outweigh the risks and weaknesses. Portugal should, therefore, continue to deliver solid growth in 2026. I am also confident that the final economic figures for 2025 will surprise on the upside, particularly in terms of GDP growth and the public accounts surplus. Portugal will have a unique opportunity in the coming years to make a leap in investment and productivity, creating a more prosperous economy that converges toward the European average.”
