Portugal's Fiscal Watchdog Raises Its 2026 Growth Forecast to 2.2 Percent, Sees Inflation at 3.2 Percent and Hiring Slowing as Net Migration Eases

Portugal's economy will grow faster this year than the country's fiscal watchdog expected in the spring, but prices will rise faster too, and the flow of new workers that has powered recent growth is set to slow. That is the picture in the updated economic and budget outlook published on 24 September by the Conselho das Finanças Públicas (CFP, the Public Finance Council), the independent body that checks the government's numbers.

The CFP now expects gross domestic product to grow 2.2 percent in 2026, up from the 1.6 percent it projected in April. The economy grew 0.8 percent in the second quarter, after just 0.1 percent in the first three months of the year, despite the Atlantic storms and the energy shock from the conflict in the Middle East and the closure of the Strait of Hormuz.

Growth was carried by household spending. The council reads that as families dipping into savings to absorb part of the rise in fuel bills, at a time when the labour market is at full employment.

Inflation back above 3 percent

The energy shock ends the slowdown in inflation, the report says. The CFP projects consumer prices, on the harmonised European measure, to rise 3.2 percent in 2026, up from 2.2 percent in 2025 and 0.3 points above its April forecast. Fuel drives the rise, with knock-on effects on transport, food and manufactured goods arriving later.

Inflation should ease to 2.6 percent in 2027 as energy prices fall. Food is the exception. The council expects food prices to keep climbing because of the higher cost of energy and fertiliser this year, and it flags the risk that grain exports through the Black Sea could stop. After 2027 it sees inflation settling around 2 percent.

Pay is rising faster than the council thought. It now projects pay per worker to grow 4.9 percent this year, against the 3.8 percent it expected in April.

Fewer new workers, slower hiring

The report's clearest message for the years ahead is about people. "Less positive" net migration and an ageing population will limit growth in the working-age population, the CFP says. Employment growth, estimated at 1.7 percent in 2026, slows to 1.1 percent in 2027 and flattens out by 2030. Unemployment edges down from 5.9 percent in 2026 to 5.8 percent in 2027 and then stays roughly stable.

With fewer extra workers and a smaller boost from consumer spending, growth will depend mainly on productivity, the council says. It projects growth of 1.8 percent in 2027, 1.7 percent in 2028 and 2029, and 1.6 percent in 2030. The engines of recent years (tourism, European funds and immigration) "allowed the labour shortage and low levels of investment to be temporarily circumvented", it writes, but those constraints remain.

The council attaches a large caveat to all of this. The Instituto Nacional de Estatística (INE, the National Statistics Institute) has revised its count of residents for 2024 up by 5.9 percent, or 637,587 people, mostly because more people had moved to Portugal than earlier estimates showed. That extra population is concentrated in working age. It will only feed into the official employment survey and the national accounts in March 2027, so the CFP's projections are still built on the old figures. The council says it cannot yet predict how big that revision will be, or even in which direction it will move the numbers, and that its effects "are not neutral" for the analysis of the public finances. AIMA's own count of 1,585,854 foreign residents at the end of 2025 was published last week.

A small surplus now, deficits later

The CFP projects on a "no policy change" basis, so it counts only measures already defined in enough detail. On that basis, it expects a budget surplus of 0.2 percent of GDP in 2026. That includes the extraordinary supplement for pensioners due at the end of the year, costed at about 400 million euros. It does not include the announced cut in personal income tax (IRS) rates up to the sixth bracket, because the new withholding tables have not been published.

From 2027 the council sees deficits: 0.2 percent of GDP in 2027, 0.5 percent in 2028, 1.0 percent in 2029 and 1.7 percent in 2030. It blames the lasting effect of cuts to income and corporate tax, higher interest costs as debt is refinanced, and, in the later years, military equipment bought with loans from the EU's SAFE defence programme. Public debt still falls, to 79.8 percent of GDP by 2030.

The council also finds that net public spending will grow 7.4 percent in 2026, against 6.9 percent in its April projection, taking Portugal further from the path it agreed with Brussels in its medium-term fiscal plan. The former Bank of Portugal governor Mário Centeno made a related argument last week about how much room the budget really has.

If oil passes 100 dollars

The CFP judges the risks to growth as mainly on the downside and the risks to inflation as mainly on the upside. In an adverse scenario, with oil above 100 dollars a barrel in the fourth quarter and uncertainty similar to the start of Russia's invasion of Ukraine in 2022, growth would be 0.1 points lower in 2026 and 0.6 points lower in 2027, and inflation 0.2 and 0.6 points higher. Tighter borrowing conditions are another risk: Portugal's ten-year borrowing cost briefly passed 4 percent on Friday for the first time since 2017.

What it means for residents

• Prices: expect inflation above 3 percent this year, with fuel the main cause, and food prices still under pressure into 2027.
• Pay: wages per worker are projected to rise 4.9 percent this year, ahead of inflation.
• Jobs: unemployment stays low, around 5.8 to 5.9 percent, but hiring slows as fewer new workers arrive.
• Taxes: the promised IRS cut is not yet in these numbers.

Source: Conselho das Finanças Públicas, "Perspetivas Económicas e Orçamentais 2026-2030 (atualização)", Relatório n.º 07/2026, and its executive summary, published 24 September 2026.