Portugal’s economic data for the first half of the year bolsters surplus outlook

On Tuesday, the Minister of State and Finance arrived confident at the Social Concertation meeting, where he presented the general outlines of the proposed State Budget for 2026 (OE2026). The reason? Minutes earlier, the National Statistics Institute (INE) and the Bank of Portugal revealed that, after all, the Portuguese economy grew more than expected in 2024 and that the public debt ratio was lower than previously calculated. At the same time, the budget surplus for the first half of the year strengthened the Government’s belief that it would achieve a slight positive balance in the public accounts this year.

In the first half of the year, the state recorded a budget surplus of 1% of Gross Domestic Product (GDP), a figure equal to that achieved in the same period of 2024, when it achieved a surplus of 0.5%. For this year, the Ministry of Finance forecasts a positive balance of 0.3% of GDP, and the known scenario seems to indicate that this is plausible, according to most economists consulted by ECO.

“There are always several imponderable factors, but it seems to me that it is within the realm of possibility that the Government will achieve its budgetary objective. These are not certainties, because years are not always the same, but I think it is a good indication”, says António Nogueira Leite, economist and former Secretary of State for the Treasury and Finance in António Guterres’ Government.

In practice, if revenue and expenditure growth follows a similar pattern to that seen in the second half of last year, public accounts will once again show a positive balance. Thus, despite the income support measures (additional income tax reduction and the “bonus” for pensioners) having an impact on third-quarter accounts, the government’s confidence that the pattern will repeat itself is based on the formula already used: “more money in the pockets of the Portuguese” – to use an expression coined by the Minister of Economy, Manuel Castro Almeida – increases private consumption and, consequently, supports tax revenue growth.

The government’s accounts are also being bolstered by the dynamism of the labour market, with social contributions representing a significant share of the balance of public accounts. For example, these grew by 1.9% in the second quarter of this year compared to the same period last year. On this subject, the Public Finance Council (CFP) pointed out again this week that the budget surpluses of recent years have been based mainly on the positive balance of Social Security, which is highly dependent on the economic cycle. For this year, the Government is currently expecting a growth rate of around 2%.

“In the first half of the year, Portugal kept its public accounts in the black, which is particularly positive as it reinforces the credibility of the State and contributes to improving its conditions for accessing financing in the markets. This performance also brings us closer to achieving an annual budget surplus in 2025, which, if achieved, will be good news, as it will be the third consecutive year with positive balances”, points out Ricardo Ferraz, professor at ISEG and Lusófona.

Even so, there are those who warn that the target is “more demanding than last year”. “This difficulty is corroborated by both the Bank of Portugal and the Public Finance Council, which anticipate a balance close to equilibrium or even a slight deficit of 0.1%”, says Paulo Monteiro Rosa, senior economist at Banco Carregosa, who points out that the downward revision of the 2024 surplus from 0.7% to 0.5% of GDP revealed “statistical uncertainties and dependence on extraordinary factors, such as the flows from the Recovery and Resilience Plan (PRR)”.

Among the main national and international economic institutions, only the International Monetary Fund (IMF) is more optimistic than the Government, projecting a positive balance of 0.5%. The Organisation for Economic Co-operation and Development (OECD) points to a surplus of 0.2%, the European Commission to 0.1% and the Public Finance Council to a zero balance, while the Bank of Portugal expects a deficit of 0.1%.

“The continued maintenance of the budget surplus, despite the implementation of tax relief measures and the review of civil service careers, is the result of the prudent and sound budgetary policy that Portugal has been following”, the Ministry of Finance said in a statement released after the publication of the INE data.

For Paulo Monteiro Rosa, “the 0.3% target remains achievable, but more difficult to reach”, considering that “its fulfilment will depend on maintaining budgetary discipline, rigorous management of current expenditure, the timely implementation of EU funding and the absence of adverse internal or external shocks”.

The economist points out that budgetary performance in the second half of the year could be more challenging, “due to the structural and usual increase in the second half of the year in expenditure on wages, pensions, social benefits, interest and public investment”, added to which are “external risks” that “may limit the room for manoeuvre”.

The Ministry of Finance also pointed out that INE revised its GDP growth forecast for 2024 upwards from 1.9% to 2.1%, while the Bank of Portugal (BdP) revealed a lower public debt ratio than initially estimated, now standing at 93.6% of GDP instead of 94.9%, and 3.3 percentage points lower than in 2023. This is because the upward revision of GDP more than offset the revision of the nominal value of the 2024 debt (which increased).

“These figures improve Portugal’s position in terms of debt and improve Portugal’s position in terms of nominal GDP. It is a very high revision of the value and therefore helps to improve public accounts”, Miranda Sarmento told journalists.

This revision has influenced the government’s own projection regarding the weight of public debt this year. The latest official forecast pointed to a ratio of 91.5% this year, but it is now expected to fall to 90.2% of GDP.