INE Confirms Portugal Ran a 0.7 Percent Budget Surplus in 2025, More Than Double the Government's Own Forecast

Portugal's public finances closed 2025 in better shape than almost anyone predicted. Data published on Thursday by the National Statistics Institute (INE) shows the country ran a budget surplus of 0.7 percent of gross domestic product last year, up from 0.6 percent in 2024 and more than double the 0.3 percent the government had officially forecast.

The result marks Portugal's third consecutive year of budget surpluses, a feat that would have seemed almost unimaginable during the austerity era of the early 2010s. It also puts the country in an increasingly small club within the eurozone, where most member states continue to run deficits.

What Drove the Surplus

Strong tax revenue was the main engine behind the better-than-expected result. Portugal's robust labour market, which added tens of thousands of immigrant workers over the past two years, expanded the income tax and social security contribution base significantly. Corporate tax receipts also exceeded expectations, buoyed by healthy profit growth across several sectors despite the global economic slowdown in the second half of the year.

On the spending side, the government managed to keep expenditure broadly in line with budgeted targets, even as it implemented a series of tax cuts introduced in the 2025 budget, including reductions in personal income tax and the elimination of some municipal surcharges.

Good News, But Storm Clouds Ahead

Finance Minister Joaquim Miranda Sarmento had already hinted at the strong result earlier this week, telling an event hosted by Banco Português de Fomento that the final surplus figure would be "far above" both official and independent forecasts.

The numbers arrive at a politically useful moment for the government, providing fiscal ammunition just as the economic outlook darkens. The Bank of Portugal's March Economic Bulletin, released on Wednesday, cut the 2026 GDP growth forecast from 2.3 percent to just 1.8 percent, citing the economic fallout from the US-Israeli military campaign against Iran and the severe weather events that battered central Portugal in early 2026.

Inflation, too, is now expected to run hotter. The central bank revised its 2026 price growth estimate upward to 2.8 percent from 2.1 percent, driven almost entirely by the surge in energy costs since the Middle East conflict escalated in late February. Oil prices have climbed above 100 dollars per barrel, while European natural gas prices nearly doubled between December and mid-March.

What It Means for Residents

For residents and expats in Portugal, the surplus carries a mixed message. The strong fiscal position gives the government room to respond to the economic slowdown with targeted spending or further tax relief without blowing a hole in public finances. INE itself projects a slimmer but still positive surplus of 0.1 percent for 2026, suggesting the cushion is real but thinning.

At the same time, the very forces that could erode that cushion — rising food prices, higher energy bills, and a more uncertain economic environment — are the ones most likely to affect household budgets directly. The government's 2026 budget assumptions were already looking strained before these numbers arrived; the question now is whether the surplus provides enough of a buffer to ride out what could be a difficult year.

Portugal's debt-to-GDP ratio also continues to fall, reinforcing the country's improved standing with credit rating agencies and international investors. For anyone considering long-term investment or property purchases in Portugal, the fiscal trajectory remains one of the more encouraging signals in an otherwise uncertain landscape.