Portugal’s Economic Outlook for 2024-2025

By Sergio Goncalves
LISBON (Reuters) – Portugal’s government projects an annual economic growth rate of approximately 2% for 2024 and 2025. They anticipate small budget surpluses during these years despite an increase in spending, a source informed Reuters on Tuesday.

These projections are slightly lower than the previous year’s figures and are part of the economic outlook for the draft 2025 budget presented to opposition parties by the centre-right minority government. The government has not provided a comment on these projections.

Since taking office in April, the new government has encountered several challenges in parliament, with opposition parties uniting to block certain fiscal proposals. This situation has raised concerns regarding the approval of the budget bill later this year, which represents the government’s first major test for survival.

Despite these challenges, Prime Minister Luís Montenegro and opposition leader Pedro Nuno Santos have expressed a willingness to negotiate the budget, aiming to avoid another election following two early general elections in the past two years.

According to the source, the government expects a budget surplus of 0.3% of GDP this year and 0.2% in 2025. This is in light of a projected increase in primary spending (excluding debt servicing costs) of 8% for this year and 4%-5% for 2025. Tax revenues are expected to rise between 4% and 4.5% annually.

In the previous year, the economy grew by 2.3%, with a budget surplus reaching 1.2% of GDP, the strongest in 50 years of parliamentary democracy.

The new administration has introduced increased pensions and public sector salaries, as well as pledged tax cuts for the middle class, youth, and businesses to enhance growth.

However, Portugal’s economy showed a mere 0.1% growth in the second quarter compared to the previous three-month period, which had seen an expansion of 0.8%. This slowdown is attributed to weaker net exports and reduced private consumption.