Portugal

Private consumption and European funds, drivers of solid growth in 2026

In 2025, growth will slow slightly compared with 2024, but is still expected to remain solid in regional terms (0.9% in the eurozone). The slowdown is due to a backlash effect observed in the first quarter, following the marked acceleration at the end of 2024. This acceleration was fuelled by a sharp increase in household disposable income, stimulated by expansionary fiscal measures, thereby boosting private consumption. In 2026, the Portuguese economy should continue to outperform. Lower income tax, higher wages (minimum wage of EUR 920 after EUR 870 in 2025) and broadly stable inflation will support robust private consumption. However, global uncertainty could weigh on consumption, as evidenced by the rise in the household savings rate, which peaked in early 2025. Public investment is expected to grow significantly, supported by disbursements from the European Union-funded Recovery and Resilience Plan (RRP), with transfers peaking in 2026. However, persistent delays in the implementation of these European funds could limit the expected positive economic impact. As at 3 September, 2025, Portugal had collected EUR 12.7 billion. However, of the EUR 22.2 billion to be implemented by 2026, only 39% of this amount has been paid to beneficiaries. At the same time, private investment is expected to grow, supported by improved financing conditions in the wake of four cuts in the ECB's key interest rates since January 2025 and a further reduction in corporation tax (IRC).

The services sector (77% of GDP in 2024) is expected to remain dynamic, particularly in tourism and related activities (hotels, restaurants, retail). However, its impact on growth will be less pronounced than during the post-pandemic recovery phase. The construction sector, meanwhile, is showing signs of recovery, particularly civil engineering, thanks to European funds. Residential real estate remains resilient thanks to the improvement in household finances (the non-performing loans ratio for housing fell to 1.2% in the first quarter of 2025). However, the sector will continue to face structural constraints, notably rising production costs for new housing linked to a persistent labor shortage, which is hampering new construction starts. Finally, the risks associated with the establishment by the United States, in August 2025, of a 15% tariff on imports from the European Union are particularly high for certain Portuguese sectors — notably those of gasoline, rubber and wine — which have an increased dependence on the US market.

In 2026, inflation will continue to slow, gradually approaching the ECB's target. Pressures remain, fuelled by wage dynamics and robust domestic demand. Furthermore, the recent appreciation of the euro and lower energy prices are helping to mitigate imported inflation.

A return to public deficit, but a solid external position and controlled public debt

In 2026, the centre-right government will pursue an expansionary fiscal policy, focused on increasing spending on public services and pensions, raising wages and cutting taxes. Nevertheless, this policy will remain moderate, as maintaining a balanced budget remains a key priority on the political agenda. After returning to a slight deficit in 2025, the budget balance is expected to widen further in 2026. In July 2025, the Council of Ministers approved a further reduction in the corporate income tax rate from 20% to 19% in 2026 (from 16% to 15% for SMEs on the first €50,000 of taxable income). In addition, the financing of the RRP will rely more on loans than on subsidies in 2026, this time with a negative impact on public accounts. The government also plans a significant increase in defence spending, made possible by the activation of a national derogation clause, which allows this spending to be increased by 1.5% of GDP per year over the next four years. Finally, strong GDP growth, combined with an overall cautious fiscal stance, should allow the public debt to continue its decisive downward trajectory in 2026. However, the reappearance of a budget deficit will slow the pace of this decline.

The country's external position is expected to continue improving in 2026, driven by sustained high current account and capital account surpluses. The structural deficit in the goods balance—linked to increased imports of machinery and capital goods amid sustained investment—will be largely offset by the surplus in services, fueled by tourism revenues. Remittances from the Portuguese diaspora will offset dividend repatriated by foreign investors, while increased European capital transfers will strengthen the capital account surplus.

Parliamentary fragmentation promises political instability

Early parliamentary elections in May 2025, triggered by the resignation of Prime Minister Luís Montenegro following allegations of conflict of interest, once again resulted in a fragmented Parliament—one year after the fall of the socialist government. Montenegro was ultimately reappointed as head of the executive and now leads a center-right minority government (the Democratic Alliance, a coalition of the PSD and the CDS-PP) that holds 91 of the 230 seats in Parliament. For the first time, the far-right Chega party has emerged as the main opposition force, with 60 seats, ahead of the Socialist Party (PS, 58 seats). Although it managed to pass the 2025 budget thanks to the PS abstaining, the government seems to have prioritized negotiations with Chega this time around in order to get laws passed, particularly the 2026 budget. In the hope of securing its support, it has shown itself willing to incorporate some of Chega's demands, including further reductions in income tax for middle-income earners (from the second to the fifth). In July 2025, it also adopted an anti-immigration legislative package aimed at limiting visas, tightening family reunification, and eliminating simplified regularization procedures. The vote on the state budget is not guaranteed, but an agreement seems essential. Indeed, the January 2026 presidential election, under the Constitution, prevents the dissolution of parliament (and the fall of the government) until at least April 2026. Regardless of the outcome of the ongoing negotiations, the current fragmentation of Parliament points to a period of uncertainty and possible political instability in the coming years.

Payment

Cheques are frequently used in Portugal and it is common practice to establish payment plans with post-dated cheques which are payable on presentation. If the bank account is not sufficiently provisioned, they are borne by the bank up to a maximum amount of €150. In the case of bounced cheques, an individual person or a company is prohibited from receiving or issuing further cheques for a maximum term of two years (or eventually six years, if there is a court decision).

Bills of exchange are commonly used for commercial transactions in Portugal. In order to be valid, they are subject to stamp duty, the rate of which is set each year in the national budget. A bill of exchange is generally deemed independent of the contract to which it relates.

Cheques, bills of exchange, and promissory notes offer effective guarantees to creditors against defaults, as they are legally enforceable instruments which entitle debt holders to initiate “executory proceedings”. Under this process, creditors can petition the court to issue a writ of execution and notify the debtor that this has been done. When debtors still fail to settle their debts, the creditors may request that the court officer issues an attachment order against the debtors’ property.

Electronic transfers via the SWIFT network are widely used by Portuguese companies and are a quick, reliable and economic means of payment. If the buyer fails to make a transfer, the legal recourse is to institute ordinary or summary proceedings, based simply on an unpaid invoice.

In the event of a payment default, creditors are not required to issue a protest notice before bringing an action to court, but such a notice can be used to publicise the matter and thus put pressure on debtors to honour their obligations, albeit belatedly.

Debt Collection

Amicable phase

Amicable collection begins with the debtor being sent four demands for the payment of the principal amount. Interest on the principal can be requested, but is normally difficult to collect in Portugal. Payment agreements subsequently made between creditors and debtors can include guarantees to ensure payments will take place as agreed.

Interest rates are set by the Treasury Department. The rates are published in the Diário da República during the first fortnight of January and July each year, and are applicable for the following six months. These interest rates are applied by default, unless the parties involved in a commercial agreement have contracted otherwise.

Legal proceedings

Fast-track procedure

The order to pay procedure (Injunção), which is applicable to uncontested commercial claims, was established in March 2003. These proceedings, whatever the amount involved, are heard by the court in whose jurisdiction the obligation is enforceable, or the court where the debtor is domiciled. Since September 2005, these injunctions can also be served electronically.

The National Injunctions Office (Balcão Nacional de Injunções, BNI) has exclusive jurisdiction throughout the country for the electronic processing of order to pay procedures.

Ordinary proceedings

In cases of disputed claims, creditors can initiate formal, but more costly, declarative proceedings (acção declarativa), to obtain a ruling which establishes their right to payment. Once the claim is filed with the court and the debtor notified, a defence can be filed within 30 days. Failure to reply entitles the court to deliver a default judgment. If the judge rules in favour of the creditor, the court may order damages, if requested by the demanding party. They then need to initiate “executive proceedings” (acção executiva) to enforce the court’s ruling.

Under the revised Code of Civil Procedure, any original deed established by private seal (i.e. any written document issued to a supplier) in which the buyer unequivocally acknowledges his deb, is deemed to be an agreement that is enforceable by law. Since 2013, when the most recent revision of the Code of Civil Process was made, written signed payment plans can only be used to initiate executory proceedings when they have been recognised by a notary.

In the scope of the recent restructuring of Portuguese courts which has been ongoing since 2014, more courts specialising in commercial issues have been created. The number of Courts of First Instance has been reduced to 23 (in each district capital), while there are now 21 specialised courts (Secções de Competência Especializada) for commerical issues (secção de Comercio), commercial issues. These latter sections deal specifically with insolvencies and commercial company matters. During this same period, 16 sections specialising in Enforcement Procedures (Secções Especializadas) have also been created.

Legal actions in Portugal can take several years, depending on the complexity of the case. Enforcement proceedings can be faster, depending on the existence of assets.

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Enforcement of a Legal Decision

Once all avenues of appeal have been exhausted, a judgment normally becomes final and can be enforced. If the debtor fails to comply with the decision, the creditor can request compulsory enforcement mechanisms before the court – either through an Attachment Order, or by allowing payment of the debt to be obtained from a third party which owes money to the debtor (Garnishee Order).

Foreign awards rendered in other EU countries benefit from specific enforcement mechanisms, such as the European Enforcement Order (which can be used if the claim is undisputed), or the European Small Claims Procedure. Awards rendered in non-EU countries must be party to a bilateral or multilateral agreement with Portugal on the recognition and enforcement of court decisions.

Insolvency Proceedings

Out-of court

A special extrajudicial administrative procedure (Regime Extra Juditial de Recuperação de Empresas, RERE) came into effect on July 1, 2017. This procedure for restructuring company debts is carried out by specialised mediators. It has been designed to enable creditors and debtors to reach a compromise, in a confidential and consensual manner.

Restructuring proceedings

The reforms implemented in 2012 included the introduction of a special rescue procedure (Processo Especial de Revitalizaçao, PER). The aim of this new procedure is to ensure the recovery of debts from debtors that are in a ‘difficult economic situation’ without starting an insolvency procedure. The management is obliged to request permission from the provisional judicial administrator in order to perform “particularly relevant acts”. During this process, the administrator prepares a recovery plan which must be approved by the creditors and a judge.

Bankruptcy

Insolvency law in Portugal also provides for insolvency proceedings (Processo de Insolvência). The main goal of these proceedings is to obtain payment for the company’s creditors through the implementation of an insolvency plan. Insolvency plans can be established under which the company is restructured and can continue to operate. Should this prove unfeasible, the insolvent’s estate is liquidated, and the subsequent proceeds are distributed among the creditors.

Last updated:September 2025