Exports Carried Portugal Through the Spring, and Investment Slowed Just as the Recovery Plan Ran Out of Calendar
GDP rose 0.8 percent in chain and 2.5 percent year on year in the second quarter. Net external demand was decisive; investment growth fell from 10.4 percent to 5.7 percent. Economists say the slowdown came while the recovery plan was still spending.
Portugal's economy grew 0.8 percent between the first and second quarters of this year, and 2.5 percent against the same three months of 2025, figures the Instituto Nacional de Estatistica confirmed on Monday in its full quarterly national accounts. The headline is comfortable. The composition behind it is what economists spent the day pointing at.
Growth in the spring quarter came from abroad. Net external demand made the decisive contribution, because exports accelerated and the external deficit fell by a percentage point of GDP. Domestic demand did not carry the quarter; it slowed. And the single component that slowed hardest was investment.
The investment line
Gross fixed capital formation rose 5.7 percent year on year in the second quarter. That sounds respectable until you set it against the 10.4 percent recorded in the first quarter, when the Nvidia chips destined for the Sines data centre landed in the national accounts and flattered the number.
Joao Duque, professor at ISEG and a former president of the school, laid out the run of quarters: 7.3 percent in the first quarter of 2025, 6.9 percent in the second, 4.4 percent in the third, and now 5.7 percent. "It is noticeable, the break in investment," he told ECO. "These are not good signs, it is not very interesting growth, given that we are under the recovery plan."
That last clause is the point. The execution deadline for Portugal's Recovery and Resilience Plan expired on Monday, the same day the GDP figures came out. If investment was only growing at this pace while the plan was still spending, the question is what happens to the number now that it has stopped. "I was expecting the second quarter to be a good quarter for investment because we are closing the recovery plan," Duque said. "If this is with the plan, and we take it away, then it is worrying."
The case for calm
Antonio Nogueira Leite, professor at Nova SBE, called the result stronger than he would have predicted in May. "The external market went well and allowed this growth," he said. "Net external demand improved, because the deficit fell a percentage point of GDP, and that was decisive for this result. But it does not mean there is nothing to watch closely, above all the investment data, whose slowdown signal was clear."
On the government's 2 percent growth target for 2026, he judged it "viable" absent a sharp reversal, while flagging the uncertainty around it. The government itself trimmed that forecast to 2 percent in July; Standard and Poor's, which held Portugal at A+ with a positive outlook last week, put its own call at 1.7 percent.
Both economists flagged the same two pressures on the quarters ahead: a tight labour market, and the return of inflation to 3.3 percent in August on fuel prices, which may work its way into processed food.
What this means for expats
- The growth is real but narrowly sourced: it rests on exports rather than on domestic spending, which makes it more exposed to trade conditions than a headline of 2.5 percent suggests.
- Watch the post-plan quarters: the recovery plan reached its deadline at 75 percent execution, and the investment line is where its absence will show first.
- Pay is still catching up: wages rose 5.1 percent in the same quarter, but inflation left workers only 1.8 percent better off in real terms.
- Prices are not settled: August inflation returned to 3.3 percent, almost entirely on fuel, which matters for anyone budgeting a fixed euro income here.
