Portugal Hit 2% NATO Defense Spending Target for the First Time in 2025, But Still Ranks Among the Alliance's Lowest Spenders

Portugal crossed a decades-old threshold in 2025, spending more than 2% of GDP on defense for the first time since NATO established the target in 2014, according to the alliance's newly released annual report. The milestone came with a record-breaking €6.118 billion in defense spending—a 37% jump from 2024 and nearly double the €3.563 billion invested just three years earlier.

But Portugal's achievement puts it squarely at the bottom of NATO's spending league table. Only five countries barely cleared the 2% bar in 2025: Portugal, Spain, Belgium, Albania, and Canada. The rest of the 32-member alliance spent more, with Poland leading at 4.7% and the United States contributing 3.19% of GDP despite a slight decline from 2024's 3.3%.

The 5% Reality Check

Portugal's climb to 2% may have been historic, but NATO has already moved the goalposts. In June 2025, the alliance agreed to a new target: 5% of GDP by 2035, with an interim review in 2029. For Portugal, that means more than doubling current spending over the next decade—a fiscal and political challenge that will test the country's ability to balance domestic priorities like housing, healthcare, and public sector wages against external security commitments.

Prime Minister Luís Montenegro confirmed the 2025 achievement in his June 2025 inauguration speech, framing it as proof of Portugal's reliability as a NATO partner. The timing was deliberate: the country's return to fiscal surpluses and a €22.2 billion influx from the EU Recovery and Resilience Plan provided the fiscal space to accelerate defense procurement without triggering political backlash.

But that window may be closing. The Bank of Portugal revised 2026 economic growth down to 1.8% this week, citing the Middle East war and storm damage. If growth stays weak and Brussels tightens fiscal rules, Portugal may struggle to sustain even 2% spending, let alone reach 5%.

Europe's Defense Spending Surge

Portugal's modest increase sits within a broader European defense boom. NATO countries in Europe and Canada spent $574 billion on defense in 2025—a 20% real-terms increase from 2024, according to NATO Secretary General Mark Rutte. Since 2014, European allies have more than doubled annual defense spending, with a cumulative real increase of 106%.

The United States still shoulders roughly 60% of total NATO defense spending despite its own marginal decline, but the European uptick reflects two pressures: the ongoing war in Ukraine and former U.S. President Donald Trump's threats to withdraw NATO security guarantees from countries failing to meet spending targets. Even though Trump left office, his rhetoric permanently shifted the alliance's political calculus.

"There is no room for complacency and no time to waste, as the security of one billion people is at stake," Rutte wrote in the report. "North America and Europe have always been stronger together in NATO, and that is how we will remain secure in a more dangerous world."

What This Means for Expats

For Americans, Britons, and other expats in Portugal, the defense spending increase is largely invisible in day-to-day life—unless you work in the defense sector or live near one of Portugal's NATO airbases. But the fiscal implications matter. Every billion euros directed toward fighter jets, naval frigates, or cybersecurity capabilities is a billion euros not spent on housing subsidies, education, or the healthcare system expats rely on through the Serviço Nacional de Saúde.

Portugal's path to 5% by 2035 will inevitably force trade-offs. If you're planning to stay in Portugal long-term, expect more debates about infrastructure investment, tax policy, and public service quality as the country navigates these competing pressures. The 2% target was politically manageable because it coincided with EU funds and budget surpluses. The 5% target, coming during slower growth and rising geopolitical uncertainty, will be a different story.

Source: NATO Annual Report 2025 (released March 26, 2026), ECO (March 26, 2026)