Portugal’s economy has shown resilience in recent years, with historically high employment rates and declining public debt. According to a new OECD report, structural reforms focused on strengthening public finances, boosting productivity, improving employment and skills, and advancing the climate transition could lead to stronger and more sustainable improvements in living standards. The OECD Economic Survey of Portugal projects GDP growth of 2.2% in 2026 and 1.8% in 2027, supported by robust domestic demand, while inflation is expected to moderate from 2.2% in 2025 to 2.0% in 2027.
Public finances have strengthened, with public debt falling from pandemic highs to 93.6% of GDP in 2024 and projected to decline further to 84.9% of GDP by 2027. OECD Director Luiz de Mello highlighted that improving public spending efficiency will be crucial for reducing debt, funding growth-enhancing investments in infrastructure, education, and research, and addressing spending pressures from an ageing population.
Portugal’s working-age population is expected to shrink by 16% over the next two decades, while labour productivity, at about 80% of the OECD average in 2023, has room to improve. Raising employment levels and extending working lives will be essential for sustaining economic growth and maintaining healthy public finances. Strategies such as targeted reskilling, counselling, flexible work arrangements, and gradual tightening of early retirement options can help older people remain in the labour market.
Reforms to taxation and regulation could further support growth. Reducing tax expenditures, including value-added tax exemptions, would lower distortions in the tax system, while cutting red tape would improve business dynamism and competitiveness, particularly in the services sector. Housing affordability remains a challenge due to high construction costs and slow, complex permitting processes. Shifting some tax burdens from transaction taxes to regular property taxes, taxing underused housing, investing in social housing, and providing targeted support to low-income groups would help address supply shortages and improve affordability.
Efforts to reduce greenhouse gas emissions and meet climate targets are also necessary. Harmonising and strengthening carbon pricing, combined with support for vulnerable groups, will accelerate emissions reductions. Investments in public transport and charging infrastructure are critical to reducing transport emissions, which account for a third of total emissions. Expanding private insurance against climate risks and improving coordination across municipalities will further strengthen Portugal’s climate adaptation and resilience.
