We anticipate Portuguese GDP growth of 2.4% in 2025

Although GDP shows no notable quarter-on-quarter growth in each of the four quarters of the year, the annual average growth is set to stand at 1.3%. This represents a major source of support for economic growth in 2025, bearing in mind the possibility that the international environment, which is looking highly uncertain, could have an unfavourable impact on economic activity. In this context, we have revised our GDP growth forecast for 2025 up by 10 basis points, to 2.4%.

In the opening weeks of the year, the available indicators reveal mixed patterns, suggesting less buoyant growth in Q1. The European Commission’s economic sentiment indicator has fallen to 103.9 points in February, compared to levels around 107 points in the previous months. On the upside, the card payments indicator for January suggests that consumption remains robust, particularly in the case of non-durable consumer goods.

Inflation fell by 10 basis points in February, to 2.4%, and core inflation stood at 2.4%, versus 2.7% in January. We have revised our average inflation forecast for 2025 upwards to 2.2% for both headline and core inflation, due to more encouraging signs in economic activity and strong wage growth.

Employment has reached all-time peak levels and is exceeding expectations, increasing by 1.2% in 2024 compared to the 1.0% which we had anticipated. The average annual unemployment rate fell to 6.5%. We expect employment to grow at an average annual rate of 1.2% over the next three years and the unemployment rate to remain at around 6.4% due to intense but decreasing migration flows.

The current account surplus increased in 2024, reaching 6.143 billion euros, which represents 2.2% of GDP compared to 0.6% in 2023. The improvement in the surplus of the balance of services, both for tourism and for other services, and the reduction of the energy deficit and of the balance of incomes are the main driving forces behind this improvement. The outlook for 2025 remains positive and we anticipate a surplus similar to that of 2024. The significant foreign surplus has been reflected in the reduction of foreign debt, which in 2024 stood at 44.5% of GDP, its lowest level since 2005, while the debtor position of international investment fell to 58.5% of GDP.

If confirmed (depending on the final value of nominal GDP), this would represent a reduction of 2.6 pps compared
to 2023 and the lowest ratio since 2009. For 2025, the ratio should stand at around 90% of GDP, as a result of the buoyancy of economic activity and, to a lesser extent, the positive primary balance.