Snapshot of the Portuguese Economy (December)

Key Takeaways

The Portuguese economy continues to demonstrate resilience during the second half of 2025, supported by strong labour market conditions, fiscal discipline, and stable domestic demand.
Portugal’s job market remains exceptionally strong, with unemployment and under-utilization rates remaining close to historical lows.
Employment growth continues to outpace labour force growth, increasing pressure on the labour market and supporting further wage growth.
Real wages are still expanding despite moderating inflation, helping sustain consumer spending and economic activity.
Portugal continues to maintain a positive Current Account Balance and fiscal surplus, reinforcing the country’s macroeconomic stability.
The Services sector, particularly tourism, remains the primary driver of external surpluses, offsetting Portugal’s structurally large Goods Trade deficit.
Inflation remains broadly under control, with headline and core inflation close to 2%, although services inflation remains elevated due to strong domestic demand.
Economic activity indicators suggest Portugal’s GDP growth should remain solid into Q4 2025, even if slightly below the unexpectedly strong growth recorded in Q3.

► Bottom Line:
Portugal’s economy continues to outperform expectations, supported by a strong labour market, resilient domestic demand, and improving fiscal dynamics. While structural weaknesses remain — particularly the large Goods Trade deficit — macroeconomic conditions remain constructive overall. For investors, Portugal continues to stand out as one of the more stable and resilient economies in Europe.

The Portuguese economy continues to surprise over the 2H25 (2nd half 2025), the job market remains strong, without signals of weakness. External figures and Fiscal execution remain positive, a twin surplus and finally economic activity remains in line with the recent quarters (probably below the unexpected strong 3Q25). The only negative aspect is the huge structural deficit at Balance of Goods. If it was not the case and the economy would be, probably, growing easily above 3%.

Job market

Unemployment Rate (monthly data): the job market (seasonally adjusted) continues to perform, In October, Employed Population, +3.3%YoY, above 12 months moving average (12MMA), Active Population +2.6%YoY (in line with 12MMA) and finally unemployed population, 329 000, unemployed rate 5.87% and under-utilization rate (a broad concept of unemployed people), 10.1%; close to record low figures. Meanwhile, Employed Population has grown faster than Active Population, over the recent months, so unemployment rate is coming down and should place additional pressure in the labour market. In a nutshell, the job market keeps surprising on the upside (please see graphs below).

Source: INE, AS Independent Research
Average Salary (quarterly data): average gross salaries are also performing, growing 5.3%YoY in September, even so slightly below moving averages. Figures have been adjusting, despite job market strength and the minimum wage increase in 2026, 5.7% could point to higher salaries in 2026, than previously forecast. Meanwhile inflation has adjusted, so higher real salaries keep stimulating the domestic demand, despite pressuring services inflation (please see graph below).

Source: INE, AS Independent Research

External Data (monthly data)

The Balance of Payments keeps the positive profile, Current Account Balance in October surplus, last 12 months: 1.4% of GDP; o/w Goods Balance deficit 9.6% of GDP and surplus at Services, 11.1% of GDP. So, Services Balance surplus remains above Goods balance deficit justifying the bulk of the Current Account Surplus. The Services Balance surplus, 11.1% is mainly justified by the Travel Services Account (consolidates in the Services Account), close to 7.2% of GDP, however Other Services, around 4% of GDP have slowly improved. On the negative side, the huge deficit at the Goods Balance deficit, is responsible for lower GDP growth (please see graph below).

Source: INE, AS Independent Research

Fiscal Execution and Public Debt (monthly data)

the budget execution, in October, kept the surplus above last year, €4,154Mn (YtD) vs. a surplus of €3,324Mn in 2024 (YtD), or 39bp of GDP on cash basis (LTM). Effective revenues +6.2%YtD (o/w IRS: 4.0%YtD, VAT: +9.0% and Social Security contributions, +8.4%YtD), while Expenditures, +5.2%YtD (o/w Employees, +8.0%YtD; Purchase of Goods and Services: 5.0%YtD and Current Transfers: +4.2%YtD), remain under control, even so are benefiting from a high base effect.
Finally, public debt data, in October €283.1Bn, roughly 93.2% of GDP (LTM), while after Deposits (probably a more accurate measure of public debt), €257.9Bn, roughly 84.9% of GDP (LTM), almost flat vs. December 2024. Meanwhile, the budget execution is showing a surplus of €4.1Bn, so, data is inconsistent. Even so, the government target at year-end 2025, 90.2% of GDP (currently 97.8%), should be reached.

Source: INE, BoP, AS Independent Research

Source: INE, BoP, AS Independent Research

Inflation Data (monthly data)

Inflation in Portugal remains under control; between 2.2% and 2.0% (November, headline and core data, respectively). Despite the job market tightness and salaries growing in real terms, inflation has performed positively (lower numbers) is mainly Goods inflation, around 1%, as Services inflation is above 3.5%, as domestic demand remains vibrant.

Source: INE, AS Independent Research

Economic Activity (weekly and monthly data)

After a 3Q25 (third quarter 2025) that surprised on the upside, GDP +2.4%YoY/+80bpQoQ; the 4Q25 should continue to perform, Retail sales (October data, volumes) +4.7%YoY (vs. 3Q25 average: 5.9%), Coincident Indicator index 4Q25 average +2.3%YoY (vs. 3Q25: +2.0%YoY), car sales, 4Q25 average: +3%YoY (3Q25: 14.5%) and finally Electricity consumption +3.9%YoY (vs. 3Q25: +3.1%). So, we should expect GDP over the 4Q25 to continue to perform, however below the 3Q25.

Source: INE, BoP, European Commission, AS Independent Research

Source: INE, BoP, European Commission, AS Independent Research
Disclaimer

This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damage that may, directly or indirectly, derive from. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they were collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information/this opinion may be altered without prior notice and may differ or be contrary to opinions expressed, because of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. This information is not an offer to sell or a solicitation to enter any deal or contract. It consists of data compiled by or of opinions or estimates from AS Independent Research and no representation or warranty is made as to its accuracy or completeness. Reproduction is not allowed without AS Independent Research permission.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. 3Comma Capital does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

Market Watch

Snapshot of the Portuguese Economy (December)

Key Takeaways

Job market

External Data (monthly data)

Fiscal Execution and Public Debt (monthly data)

Inflation Data (monthly data)

Economic Activity (weekly and monthly data)