DBRS Leaves Portugal One Step Short of the AA Band, Confirming A (High) With a Positive Trend and Naming Housing as a Risk

Morningstar DBRS, the Canadian credit rating agency, left Portugal's rating unchanged on Friday 13 November. It confirmed the Portuguese Republic's long-term rating at A (high), one step below the AA band, and kept the trend at Positive, the signal it has carried since May that an upgrade is possible. There was no upgrade this time, the outcome our preview on Friday morning flagged as one of the possibilities. The release is listed on the agency's Portugal issuer page under the title "Morningstar DBRS Confirms Republic of Portugal at A (high), Positive Trend".

DBRS also confirmed the short-term rating at R-1 (middle), with a Stable trend, Lusa reported via Observador and RTP.

Why DBRS kept the door open

According to Lusa, the agency said the Positive trend reflects its view that Portugal's public debt ratio will keep falling "despite a challenging external backdrop", helped by stronger than expected growth and a "prudent" budget plan for next year. After three years of budget surpluses, it expects at least a balanced budget this year.

ECO quotes the agency calling Portugal's budget position "among the strongest in the euro area". DBRS describes the 2027 State Budget proposal as "balanced" with "few new measures", and works from the government's own path: a zero balance in 2026 and a 0.1 percent of GDP surplus in 2027, after surpluses of 1.1 percent in 2023 and 0.7 percent in both 2024 and 2025. It said the slide to balance this year reflects storm and flood support (about 0.5 percent of GDP), energy price relief, the IRS (income tax) cut and the one-off pension supplement announced in September.

What is holding the rating back

• The Middle East. DBRS named an escalation or prolonged conflict there as the biggest downside risk, because it would keep energy prices high and weaken revenue growth, ECO reports.
• Housing. "Difficulties in accessing housing could erode competitiveness and limit growth over time," the agency said, while noting that supply constraints reduce the risk of a sharp price correction.
• Old weaknesses. High public debt, comparatively low GDP per head and growth potential, and sizeable net external liabilities still weigh on the rating, according to Lusa.
• Future spending. Keeping surpluses will get harder without new measures as pensions, health care and defence cost more.
• Politics. Early elections "cannot be excluded" given the government's slide in the polls, though DBRS sees no party with a clear incentive to force one.

The government's reaction

Finance Minister Joaquim Miranda Sarmento said in a statement that, "more than recognition of this government's work, this rating reflects the effort of families and companies". Speaking at an AIP (Portuguese Industrial Association) seminar on Thursday, he said Portugal has had five upgrades since April 2024 and that he expects more if debt keeps falling, Observador reports.

What it means for you

A sovereign rating is the agency's opinion of how likely the State is to repay its debt. As we noted in our preview, a higher grade can widen the pool of buyers for Portuguese bonds and help keep the State's borrowing costs down; Friday's decision leaves that step for a later review. For households, as we explained in our preview, variable-rate mortgages follow Euribor, a euro-area rate that Portugal's rating does not set, so monthly payments are not directly affected. The housing pressure DBRS flagged echoes the IMF's call this week to build more homes.