S&P Holds Portugal at A+ With a Positive Outlook, and Cuts Its 2026 Growth Call to 1.7 Percent

Standard & Poor's completed its second scheduled review of Portuguese sovereign debt on Friday evening and changed nothing that carries a letter. The rating stays at A+, the outlook stays positive, and the agency repeated that an upgrade remains on the table.

The interesting material is underneath. In the same note, S&P cut its 2026 growth forecast for Portugal from 2.2 percent to 1.7 percent, and turned a projected budget surplus into a small deficit. Both moves are attributed to events rather than to policy drift, which is precisely why the outlook survived them.

The numbers that moved

• Growth in 2026: 1.7 percent, down from the 2.2 percent the agency projected in February. S&P expects growth to hold at similar levels beyond 2027.
• Budget balance: a deficit of 0.2 percent of GDP, against the surplus of around 0.1 percent forecast six months ago.
• Debt ratio: 85.9 percent of GDP at the end of 2026, on a path the agency sees reaching 75 percent by 2029.

The fiscal slippage is itemised. Support measures rolled out after storm Kristin are worth 0.4 percent of GDP, against a storm that S&P costs at a full 1 percent of GDP. The fuel-price support measures add another 0.1 percent. Together that is roughly the distance between a small surplus and a small deficit, and the agency treats it as a one-off rather than a change in fiscal posture.

One clarification is worth making, because the figures in circulation this month do not agree. S&P's 85.9 percent is not the same measure as the Maastricht gross debt ratio Portugal reports to Brussels, which ticked back up to 92.9 percent of GDP in the second quarter. Rating agencies routinely work with a net figure, subtracting government financial assets. Both numbers are correct; they are answering different questions.

Why the Hormuz shock did not cost Portugal a notch

The agency's central judgement is that the energy price surge caused by the blockade of the Strait of Hormuz will have "a moderate impact" on the Portuguese economy this year. It gives three reasons: the low energy intensity of the economy, a strong tourism season, and the acceleration of investment under the Plano de Recuperação e Resiliência (Recovery and Resilience Plan).

The timing there is not accidental. The recovery plan's spending window closes on Monday, with execution at 75 percent and €14.46 billion already in beneficiaries' hands. S&P is explicit that it expects the investment contribution to fade afterwards, and that net exports and private consumption will have to take over:

"After 2026, and absent a new external shock, we see economic growth continuing at similar levels, as the easing of energy prices supports net exports and private consumption offsets slower investment after the peak" of the recovery plan.

What the agency says about the 2027 Budget

The most quotable passage is political. With the Orçamento do Estado for 2027 about to enter negotiation, S&P states that it does not expect the government to struggle to pass it, and explains why in unusually blunt terms.

"The Government has successfully passed two consecutive Budgets through PS abstentions, reflecting a shared commitment to fiscal discipline and a mutual strategy of reluctance to empower Chega. This stability is expected to persist in the 2027 budget cycle, although recent difficulties in passing the labour law reform signal more legislative friction."

The agency then adds the safety net it clearly regards as decisive: "even in the worst case, in which the 2027 State Budget is rejected, Portugal can count on the continuity of its robust 2026 fiscal framework." In other words, a failed budget in Portugal means the previous one rolls over under duodécimos, and S&P has priced that in.

What would move the rating either way

S&P set out both directions. It says it "could raise" the rating if Portugal keeps improving GDP per capita, supported by resilient growth and sound fiscal policy, without reversing the reduction in net public debt or letting interest payments climb. That last clause is the one to watch, because Portugal's interest bill has already been rising even while the debt ratio falls, a squeeze we set out when global borrowing costs hit decade highs this month.

The downside triggers are the mirror image: looser fiscal policy, a reversal of the debt-reduction trajectory, persistently higher interest payments, or "an unexpected loss of competitiveness".

The agency also names the two structural pressures it expects the fiscal buffer to absorb, and they are the same two every European sovereign is now being measured against: rising defence requirements and an ageing population. Its verdict is that "Portugal's debt dynamics remain favourable relative to its peers" and that the trajectory, "leveraged by prudent budgetary policy, offers the necessary margin to absorb long-term structural pressures".

Where this sits in the sequence

Friday was the second S&P review of the year. In February the agency held the rating and lifted the outlook from stable to positive, the standard signal that an upgrade may follow within roughly two years. The A to A+ upgrade itself came about a year ago, and at the time the Finance Ministry called it "a victory for Portugal". A positive outlook held for a second consecutive review, through an energy shock and a storm bill worth 1 percent of GDP, is a quieter result but arguably a firmer one.

What this means for foreign residents

• Mortgage and credit pricing: the sovereign rating is the floor under Portuguese bank funding costs. A held A+ with a positive outlook keeps that floor where it is, which matters more for spreads on new lending than the ECB's next move does.
• Budget planning for 2027: if you have been waiting to see whether a political crisis derails tax measures announced for next year, S&P's read is that the PS abstention arithmetic holds, and that even a rejected budget rolls the 2026 framework forward rather than creating a cliff.
• Growth expectations, recalibrated: 1.7 percent is a downgrade from February, not a contraction. It is also below the government's own working assumption, which is worth remembering when revenue-dependent measures are announced in the autumn.
• The storm bill is now visible in the sovereign accounts: Kristin has moved from a civil-protection story to a fiscal one. A 1 percent of GDP event with 0.4 percent of GDP in state support is the scale that rating agencies notice, and it is a useful benchmark for how the state responds when the next one arrives.