Portugal’s fiscal trajectory is shifting toward a narrow surplus in 2026, according to the latest projections from the Conselho das Finanças Públicas (CFP). The independent watchdog now anticipates a budget surplus of 0.1% of GDP for 2026, a figure that aligns with the Portuguese government’s own expectations for the 2026 State Budget.
This revised outlook represents a pivot from previous deficit projections, driven largely by a positive “carry-over” effect from 2025, which the CFP estimates will improve the balance by 0.7 percentage points of GDP. However, the forecast arrives amidst a complex economic backdrop, coinciding with a more cautious view from the International Monetary Fund (IMF), which recently revised its own budget balance forecast for Portugal downward from zero to a 0.1% deficit in its October 2025 report.
The current fiscal optimism is anchored in stronger-than-expected tax collections. The CFP notes that a revision upward in fiscal revenue—amounting to an additional 0.5 percentage points—has more than offset spending pressures. This growth is particularly evident in Value Added Tax (VAT) and personal income tax (IRS) revenues, which contributed an additional 0.4 percentage points. The state is expected to benefit from higher dividends from the state-owned bank Caixa Geral de Depósitos (CGD), following the bank’s strong 2025 performance.
The fragile path to a 2026 surplus
Even as the 2026 surplus is now the baseline, the CFP warns that this stability is contingent on several volatile factors. The balance remains sensitive to emergency spending required to address recent severe storms and the indirect costs associated with ongoing geopolitical conflicts. The council cautioned that any costs exceeding their current assumptions, if not offset by other revenues, would likely push the balance back into a deficit.
Looking further ahead, the CFP envisions a gradual deterioration of the budget balance under a scenario of “invariant policies”—meaning no new legislative changes to current tax or spending paths. The council predicts a return to deficit starting in 2027, with the gap widening steadily toward the end of the decade.
This projected decline is attributed to the permanent and cumulative impact of tax relief measures for both individuals (IRS) and corporations (IRC), alongside rising interest payments on public debt. The projected trajectory is as follows:
| Year | Forecasted Balance | Primary Driver |
|---|---|---|
| 2025 | +0.7% (Surplus) | Strong tax revenue & lower capital expenditure |
| 2026 | +0.1% (Surplus) | Positive carry-over from 2025 |
| 2027 | -0.4% (Deficit) | End of temporary IRS rates & IRC reductions |
| 2030 | -1.0% (Deficit) | Cumulative tax cuts & debt interest costs |
Growth forecasts: A gap in optimism
Despite the fiscal surplus, the Portuguese Public Finance Council forecast for economic growth is notably more conservative than that of the government. For 2026, the CFP anticipates GDP growth of 1.6%, a downward revision of 0.2 percentage points from its September estimate of 1.8%.
This stands in stark contrast to the government’s 2026 State Budget, which projects a much more robust growth rate of 2.3%. The CFP’s pessimism is rooted in the aftermath of severe storms that struck the country between January and February, which the council suggests may have hindered investment projects due to the risk of recurring climate events.
External shocks are similarly weighing on the outlook. As a net importer of oil and natural gas, Portugal is particularly vulnerable to instability in the Middle East. The CFP notes that conflict in the region has direct impacts on consumer prices and indirect effects on production costs, supply chain reliability, and the economic health of Portugal’s primary trading partners.
Recovery is expected to begin in 2027, with growth potentially rising to 1.8% as energy shocks dissipate and exports improve. This rebound may be further supported by a temporary boost in disposable income resulting from increased IRS refunds.
Inflation risks and the social burden
The economic outlook is further complicated by a projected acceleration of inflation. The CFP expects the Harmonized Index of Consumer Prices (HICP) to reach 2.9% in 2026, breaking a trend of moderation that had been in place since 2022.
This inflationary spike is primarily driven by energy costs—specifically electricity, gas, and fuels. The council warns that these primary shocks will likely trigger “second-order effects,” driving up the cost of transport, food, and industrial goods. Because food and energy represent a larger share of the budget for low-income households, the CFP emphasizes that this inflation will have a “regressive distributive impact,” disproportionately affecting the most vulnerable populations.
Public debt and structural constraints
On a more positive note, the CFP maintains a downward trajectory for public debt. The council projects a debt-to-GDP ratio of approximately 81.5% by 2030, representing a cumulative reduction of 8.1 percentage points between 2025 and 2030.
However, the council notes that these projections do not account for several potential “wildcards” that could alter the fiscal path, including:
- Additional defense spending required to meet NATO commitments.
- Unquantified emergency responses to future extreme weather events.
- The full operational impact of the Recovery and Resilience Plan (PRR).
Disclaimer: This report is based on economic projections and is intended for informational purposes only. It does not constitute financial or investment advice.
The next critical checkpoint for Portugal’s fiscal health will be the finalization and parliamentary debate of the 2026 State Budget, where the government’s more optimistic growth targets will be tested against the independent benchmarks set by the CFP.
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