Portugal’s economic resurrection

Portugal’s economy has gained momentum following a challenging decade. After a 2011 euro-area bailout and years of austerity, the country only marked tepid growth and high unemployment. By the early 2020s, modest reforms and EU support had stabilised things. Even Covid-19 caused only a temporary dip in Portugal’s economy, and improving fundamentals, including a falling unemployment rate below 6% at the end of 2025 and steady inflation, set the stage for a broad rebound in 2022-2025.

Tourism has been a star performer, fuelling jobs and investment across the economy. In 2024, Portugal hosted 31.6 million visitors, of whom about 19.4 million were international visitors. International visitor-spending jumped to €31.8 billion, marking an all-time high and exceeding pre-pandemic levels. In 2025, the sector is forecast to account for 21.5% of GDP and support 1.2 million jobs, representing nearly 25% of total employment. There is also strong optimism for 2026, with forecasts pointing to a 12% increase in visitors and tourism revenues.

Portugal’s tech and startup scene is thriving as a new growth engine for the country. More than 5,000 startups now operate nationwide, marking an 8% increase in 2025. They raised roughly €886 million in venture funding in 2024, about 55% more than in 2023. These were often large financing rounds, for example, a domestic EV-charging firm raised approximately €100 million. More than half of these startups generate significant revenue abroad, giving the sector an export orientation. Collectively, they contribute around 1% of GDP and employ about 28,000 people with salaries typically well above the national average. For Portugal, this underscores a shift toward a high-value economy. The government’s support for startup visas, tax incentives, and near-universal high-speed internet has helped power this innovation boom.

Moreover, international companies are taking notice. In global surveys, Portugal ranks among Europe’s most attractive countries for new investment projects. In 2024, Portugal attracted roughly €13.2 billion in foreign direct investment, marking about 19% more than in 2023. High-profile projects include US semiconductor packager Amkor expanding its Portuguese plant, auto-supplier Bosch boosting its output, and a Renault-Geely partnership building a new engine factory to produce electric motors for hybrid vehicles. These deals are expected to create over 1,000 skilled jobs. Portugal has also gained international confidence, with its credit rating upgraded to “A” by Fitch and Moody’s, marking the first time in over a decade that the two main agencies have placed Portugal on the “A” scale.

Green energy and infrastructure build-out are high on Portugal’s agenda to reinforce growth in the short- and long-term. In 2024, staggering 71% of its electricity came from renewables such as wind, solar and hydro. The government has set one of Europe’s most ambitious renewable energy targets, aiming for 93% by 2030. Major projects are underway, such as Portugal’s largest onshore wind farm, the 274 MW Tâmega wind complex being constructed by Iberdrola, and a 100 MW green-hydrogen electrolyser, with installations completed at Sines refinery in January. On the transport side, a €2.4 billion tender was relaunched in early 2026 for a key section of the Porto-Lisbon high-speed rail line, which will cut travel times and ease congestion. Upgrades to ports, especially Sines, and highways are also in progress, improving logistics nationwide.

Portugal’s manufacturing and agri-exporters are also gaining momentum. Exports of goods grew in 2023-2024, driven by industry diversification and are expected to increase by 5.1% in nominal terms in 2026, after sluggish growth in 2025. Leading sectors such as cars, auto parts, and machinery have increased shipments to near-shoring EU markets, and traditional exports are at new highs. For example, Portugal’s footwear industry, a major export, saw shipments rise in early 2025 despite global competition. Wine, olive oil and tech exports remain strong in established markets, including Germany, France, and the US, and are gaining ground in emerging ones. This export momentum, together with booming tourism, provides Portugal with a strong foundation for growth.

Behind these trends lie prudent policies. Portugal has run small fiscal surpluses since 2023 and cut its debt ratio from over 130% of GDP during the pandemic to around 90% today. Prudent budgets and low inflation have kept borrowing costs down. Recent measures aim to sustain momentum, such as the 2025 budget, which introduced a decade-long tax break for young professionals, including a 100% income tax exemption in their first year, to curb emigration. Other reforms, such as R&D tax credits, startup visas, and streamlined regulations, further aim to improve Portugal’s business environment.

Portugal’s growth is expected to be about 2.3% in 2026, well above the eurozone average, amid low inflation and rising household incomes. One analysis even ranked Portugal as the world’s top-performing advanced economy in 2025. However, clear challenges remain, including ensuring a sufficient housing supply to meet tourist and expat demand and efficiently deploying EU recovery funds. But the overall trajectory is clear – with diversified growth and consistent policy, Portugal has emerged as a southern European success story.

Dr Lina Klesper is an international legal assistant at PKF Malta