Economy

Bank of Portugal: Immigration Has Driven Employment Growth, But the Trend Is Reversing Under New Rules

The central bank's March economic bulletin reveals that foreign workers accounted for most employment growth since 2018, but stricter immigration policies and slower economic growth are now reducing their contribution—with major implications for Portugal's labor market and productivity.

The Bank of Portugal has released its March 2026 Economic Bulletin with a detailed analysis that cuts through political rhetoric about immigration: foreign workers have been the backbone of Portugal's employment growth in recent years, and their declining numbers will force the economy to find productivity elsewhere.

The data is unambiguous. Between 2010 and 2024, approximately 1.4 million foreign workers entered Portugal, with 1.2 million arriving since 2018 alone. These workers spent an average of 86% of their time in Portugal employed, 5% working as self-employed, and only 1.7% receiving unemployment benefits.

"The foreign workers who are here in Portugal are here to work," Bank of Portugal Governor Álvaro Santos Pereira told journalists at the bulletin's presentation on March 25. "More than 90% of their time is spent doing productive activities and clearly working."

The Numbers That Matter

The central bank's analysis, which cross-referenced Social Security data with immigration records, paints a picture very different from common political narratives:

86% of time employed: Foreign workers who entered Portugal since 2010 spent the vast majority of their time in paid employment
1.7% on unemployment benefits: A fraction compared to Portuguese nationals
0.9% receiving other social benefits: Minimal social welfare usage
Negligible pension payments: Because most are young and recently arrived

Santos Pereira emphasized what he called a "curiosity": Portuguese nationals receive more subsidies and pensions as a percentage of their population than immigrants do. "Immigrants practically don't receive pensions and receive very little unemployment benefit. For all intents and purposes, they are working, and therefore they don't need [unemployment benefits]," he said.

Where Foreign Workers Went

The employment distribution reveals which sectors have depended most heavily on foreign labor:

20% in administrative activities and support services
18% in accommodation and restaurants
15% in agriculture and fishing
14% in construction

By nationality, Brazilian workers accounted for 38% of all foreign arrivals since 2010, followed by workers from South Asian countries (India, Bangladesh, Nepal, and Pakistan) at 19%, and workers from Portuguese-speaking African countries (PALOP) at 14%.

The Reversal: 2025 Marked a Turning Point

While total employment continued to grow in 2025, reaching record highs, the Bank of Portugal identified a "gradual slowdown" throughout the year. The year-on-year growth rate for employees with wages declared to Social Security stood at 2% in September 2025, down from 2.6% in the first three quarters of 2025, and well below the 3.4% average in 2024 and 5% in 2023.

The shift was driven almost entirely by foreign workers:

Portuguese nationals' contribution increased from 0.3 percentage points in 2024 to 0.7 percentage points in the first three quarters of 2025
Foreign workers' contribution fell from 3 percentage points in 2024 to 1.9 percentage points in the same period of 2025

The decline was most pronounced among workers from South Asian countries (India, Bangladesh, Nepal, Pakistan), whose contribution dropped from 0.9 percentage points in 2024 to just 0.3 percentage points in 2025—with negative year-on-year growth rates starting in July. Brazilian workers also saw their contribution fall from 0.8 to 0.3 percentage points.

Only workers from PALOP countries (Angola, Mozambique, Cape Verde, Guinea-Bissau, São Tomé and Príncipe) increased their contribution slightly, from 0.9 to 1.1 percentage points.

Why the Slowdown? Policy and Economics

The Bank of Portugal attributes the declining foreign worker influx to two factors:

Legislative changes to immigration rules: The government ended the manifestação de interesse (expression of interest) pathway, which had allowed workers to enter Portugal and regularize their status afterward. The new government under Prime Minister Luís Montenegro has emphasized "regulated immigration" as opposed to what it characterizes as the previous government's "open doors" approach.
Slower economic growth: Particularly in sectors like accommodation and restaurants, agriculture and fishing, and commerce—all of which had experienced strong post-pandemic recovery but have since cooled.

The employment slowdown was most visible in:

Accommodation and restaurants: Contribution fell from 0.5 to 0.2 percentage points
Agriculture and fishing: From 0.2 to -0.1 percentage points (negative growth)
Commerce: From 0.5 to 0.3 percentage points
Industry: Turned negative, from 0.0 to -0.1 percentage points

Construction maintained a positive contribution of 0.5 percentage points, while public administration, health, and education actually increased their contribution from 0.6 to 0.8 percentage points—sectors with higher average wages.

What This Means for Expats and Foreign Workers

The Bank of Portugal's findings have several practical implications for people considering moving to Portugal or already living here:

1. Tighter Immigration Will Continue

The bulletin explicitly states that the Bank's economic projections "assume that immigration flows will continue to reduce." This is now baked into official forecasts. If you're planning to move to Portugal, expect the new "Via Verde" fast-track system to be selective, prioritizing sectors with documented labor shortages.

2. The Labor Market Is Cooling, Especially in Tourism

Foreign workers found most opportunities in accommodation and restaurants, but that sector is now slowing. If you're coming to Portugal for work in hospitality, the boom years are over. Understanding your employment rights becomes more important when job growth slows.

3. AIMA Backlogs Will Persist

With AIMA still clearing backlogs and now facing strikes from cultural mediators, processing times are unlikely to improve soon. The system is under political pressure to process fewer applications more carefully, not more applications faster.

4. Higher-Skill Workers May Find Better Opportunities

The sectors losing foreign workers are those with "below-average wages," according to the bulletin. Meanwhile, public administration, health, and education—sectors requiring more qualifications—are growing. If you're a digital nomad or remote worker with specialized skills, you're in a different labor market than the one experiencing slowdown.

5. Productivity Will Become the Focus

The Bank of Portugal is explicit about the policy implication: "Given the aging of the Portuguese population, it is essential that economic growth is progressively more anchored in productivity gains and less in employment expansion."

This means investment in "workforce training, as well as in investment and innovation, taking advantage of advances in automation, digitalization, and artificial intelligence," according to the bulletin. For workers, this translates to a greater premium on skills and qualifications in the years ahead.

The Political Context

The Bank of Portugal's data release comes at a politically sensitive moment. The government has been defending its tougher immigration policies, including a new "return law" for undocumented immigrants, against criticism that it is hostile to foreigners.

The central bank's findings provide ammunition for both sides: supporters of tighter controls can point to the slowdown in low-wage sectors and argue for productivity-focused growth, while critics can highlight how foreign workers contribute far more in labor than they consume in social benefits—and warn that losing them will hurt economic growth.

The bulletin notes that the Bank of Portugal has revised down its 2026 GDP growth forecast by 0.5 percentage points, to 1.8%, reflecting "deterioration of the international context" due to the Middle East conflict and its impact on energy prices. But the immigration slowdown is now also part of that calculation.

Bottom Line

Portugal's labor market is at an inflection point. After years in which foreign workers drove nearly all employment growth and filled critical gaps in tourism, construction, and agriculture, the inflow is slowing—by policy design and economic reality.

For foreign workers already in Portugal, the data confirms what many suspected: you are working, contributing, and not relying on social benefits. For those considering a move, the message is more cautious: opportunities remain, but the sectors that absorbed the most foreign workers in recent years are cooling, and the regulatory environment is becoming stricter.

The Bank of Portugal's conclusion is clear: "The sustainability of lasting increases in real wages and well-being ultimately depends on sufficiently robust growth in productivity per worker." In other words, Portugal will need to get more productive with the workers it has, because it's not planning to bring in as many new ones. (Background: see our piece on the Cabeça Gorda migrant-exploitation case.)