The report, which revises Portugal's growth forecasts upwards, highlights the country’s impressive performance amidst challenges faced by other major European economies such as Germany and France.

The OECD now expects Portugal’s GDP to grow by 1.7% in 2024 and 2% in 2025. While these projections slightly lag the Portuguese government’s expectations of 1.8% for 2024 and 2.1% for 2025, they still demonstrate a robust recovery compared to other European nations. In contrast, the Eurozone is expected to grow by only 0.8% in 2024 and 1.3% in 2025, marking a significant disparity in growth rates.

When comparing Portugal to its economic giants, France and Germany, the difference becomes even more striking. The OECD forecasts that in 2025, Portugal’s economy will likely grow more than double France’s and nearly three times the size of Germany’s. While Portugal is projected to grow 2%, France is expected to grow just 0.9% and Germany a mere 0.7%. This makes Portugal one of the fastest-growing economies in the Eurozone, at a time when its larger counterparts struggle with internal crises and fragile economic conditions.

A key factor contributing to Portugal’s growth is strong domestic consumption, which has been bolstered by real wage increases above the European average. This has placed Portugal in the top five of the OECD countries for growth in household disposable income, compared to pre-pandemic levels. Additionally, the acceleration of the National Recovery and Resilience Plan (PRR) is expected to drive further investment in 2024, supporting growth without jeopardizing the country’s fiscal balance.

However, the OECD also issued warnings regarding the fiscal outlook for Europe, urging governments to adopt responsible fiscal policies to ensure long-term financial health. The OECD advises European countries to build financial buffers to protect against potential future economic shocks, particularly as inflationary pressures stabilize. The gradual end of pandemic-related support measures provides governments more room to rebuild these reserves, but this must be balanced against rising investment needs related to climate, digital transition, and defense.

The report’s call for prudent fiscal management is a reminder of the broader economic challenges facing the Eurozone. While countries like Portugal have shown resilience and growth, much of Europe faces the dual pressures of increasing public spending and managing national debts, all while navigating geopolitical tensions and global economic uncertainty.

In summary, Portugal’s economic performance is standing out in the European context, with the country poised to continue its growth trajectory through 2025. Despite global challenges, Portugal is capitalizing on domestic strengths, investment in key sectors, and a favorable fiscal outlook. Yet, the OECD’s fiscal advice serves as an important reminder that sustainable growth requires careful balancing of economic priorities, financial prudence, and long-term planning.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes