Portugal’s recovery from the fiscal crisis a decade ago remains impressive. The OECD’s recently released Economic Survey for Portugal highlights a resilient economy with solid growth, historically low unemployment, inflation close to 2% and markedly improved fiscal and external balances, despite a challenging European environment. At the same time, the OECD emphasises that structural constraints, including labour shortages, an ageing population and weak productivity, may weigh on medium-term growth.
Activity has remained resilient, with real GDP growth running at about 2% in both year-on-year and quarter-on-quarter annualised terms. The OECD projects growth of roughly 1.9% in 2025 and 2.2% in 2026, pointing to a stable expansion rather than a cyclical boom. Growth is supported by rising real incomes, strong employment and the continued implementation of EU funded investment programmes, with domestic demand as the main driver and external demand somewhat softer amid weaker European growth and global uncertainty.
The labour market is the clearest pillar of strength. Unemployment, which peaked at 18.3% in early 2013, declined steadily to 5.6% in December 2025, the lowest level in roughly a quarter of a century. This reflects sustained job creation and strong labour demand across sectors.
High employment supports household income, consumption and fiscal revenues. The OECD notes that employment has reached record highs, although firms increasingly report labour shortages and difficulties recruiting skilled workers. This suggests that the labour market is not only strong cyclically but also becoming constrained structurally.
Inflation dynamics have improved significantly. Both headline and core Harmonized Index of Consumer Prices (HICP) inflation were around 2% in January 2026, close to the European Central Bank’s target for the overall eurozone economy. This represents substantial disinflation from the peak in Q3 2022, when headline inflation exceeded 10% and core inflation rose above 6%. The OECD expects inflation to remain around 2% over the coming years, indicating a relatively benign price environment. Importantly, disinflation has occurred alongside continued growth and strong employment, pointing to an orderly normalisation rather than demand weakness.