Investing.com -- Fitch Ratings has affirmed Portugal’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’A-’ on Friday, March 14, 2025, with a positive outlook. This rating reflects Portugal’s strong governance indicators and the country’s membership in the EU and eurozone.
Portugal’s ratings are also supported by the prospects for continued reduction in public and external debt, and resilience in the Portuguese economy despite external risks and political uncertainties. However, high legacy levels of public and external debt remain a challenge.
The Portuguese economy experienced accelerated growth in the fourth quarter of 2024, reaching 1.5% quarter on quarter, the highest in the eurozone. Private consumption led this growth, although annual growth moderated to 1.9% from 2.6% in 2023 due to the negative contribution of net exports. Growth is expected to accelerate to 2.3% in 2025, driven by high carryover and increased private consumption, due to rising real disposable income and higher employment.
However, there are rising external and internal risks to growth. Externally, rising EU-US trade tensions and geopolitical issues could dampen exports and reduce growth. Internally, election-related instability could impede the execution of the Recovery and Resilience Plan (RRP), delay critical projects, and weaken consumer and business confidence.
Political uncertainty has been heightened by the failure of the confidence motion on March 11, leading to snap elections scheduled for May 18. This marks Portugal’s third general election in three years, emphasizing recurrent political volatility.
Despite these challenges, Portugal’s fiscal outperformance is expected to continue relative to its rated peers and most EU countries, underpinned by prudent policies and supported by economic growth and higher employment. The 2024 budget surplus is estimated to be 0.6% of GDP, outperforming the forecast ’A’ median deficit of 2.8% of GDP.
Portugal’s public debt decreased from 134.1% of GDP in 2020 to 95% in 2024, driven by robust economic recovery, high primary fiscal surpluses, and prudent policies. A continued, albeit slower, decline to below 90% is expected in 2026, in line with the 91.1% debt level for the eurozone.
The country’s external position has improved over recent years, with both public and private sector deleveraging contributing to reduced external risks. In 2024, the current account showed a surplus of 2.2% of GDP, the highest since adopting the euro.
Portugal’s labor market remains robust, with the unemployment rate marginally decreasing to 6.5% in 2024 from 6.6% in 2023, according to Eurostat data. Further declines to 6.4% in 2025 and 6.3% in 2026 are expected, supported by economic recovery.
The banking sector has also strengthened, with major banks’ net income rising 15.2% year on year in 2024, reflecting sector resilience. The non-performing loan ratio declined to 2.6% by the end of September 2024 from 2.9% a year earlier, indicating improved asset quality.
Portugal’s ESG Relevance Score is ’5[+]’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators have in Fitch’s proprietary Sovereign Rating Model. Portugal has a high WBGI ranking at 79, reflecting its long record of stable and peaceful political transitions, strong institutional capacity, effective rule of law and a low level of corruption.
The Country Ceiling for Portugal is ’AAA’, six notches above the long-term foreign-currency issuer default rating and at the upper limit of the ratings scale. This reflects the sovereign’s membership of the eurozone currency union and the associated reserve currency status. Fitch views the risk of imposition of capital or exchange controls within the eurozone as exceptionally low.
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