Portugal

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

In 2026, the Portuguese economy should continue to outperform in regional terms (1.2% in the eurozone). New expansionary fiscal measures, broadly stable inflation, and rising employment will support robust private consumption. The employed population grew by 3.3% in October 2025, the fastest pace since the post-pandemic recovery, and the unemployment rate remains low (6%). However, global uncertainty could weigh on consumption, as evidenced by the household savings rate (12% of gross disposable income in Q3 2025), which is well above its historical average. Public investment is expected to grow significantly, driven by the accelerated implementation of the Recovery and Resilience Plan (RRP) financed by the European Union – given the imminent end of the program. As of December 1, 2025, Portugal had received EUR 13.8 billion (62% of the total RRP amount). Although the country could, in theory, receive more than EUR 8 billion (3% of GDP) in the last year of the program, the amount of funds will in reality be significantly lower due to persistent delays in their implementation. 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 1.1% in the second quarter of 2025). However, the sector will continue to face structural constraints, notably rising production costs for new housing (+4.5% year-on-year in October 2025) 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.

Continued fiscal consolidation maintains a solid fiscal trajectory

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. The 2026 budget forecasts a new surplus, albeit modest, marking the fourth consecutive year of balanced budgets. The income tax rate will be reduced between the second and fifth brackets (out of nine), and corporate tax will fall from 20% to 19% (from 16% to 15% for SMEs on the first €50,000 of taxable income). In addition, the lowest pensions will be increased and the minimum wage will rise from €870 to €920 per month (over 14 months). 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, which exceeded 130% of GDP at the height of the crisis in 2011. However, the Portuguese economy continues to face several structural weaknesses that will inevitably weigh on public finances in the medium term: rapid demographic aging, low productivity, and a housing crisis that is fueling the exodus of young people.

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). This rise in popularity has led to more pragmatic relations between the traditional right and Chega. In July 2025, the government adopted an anti-immigration legislative package aimed at limiting visas, tightening family reunification, and eliminating simplified regularization procedures. However, for the past two years, stability has depended on the “responsibility” of the Socialists, who agreed to abstain from voting on the 2025 and 2026 budgets, thereby allowing them to be adopted. This cooperation remains fragile and circumstantial, however. 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:December 2025