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PEO 2026

The no-policy change scenario now published by the Portuguese Public Finance Council is imbedded in high uncertainty derived from the invasion of Ukraine by Russia, notwithstanding the more stable situation in the developments of the COVID-19 pandemic. Based on available information, the effects of the economic sanctions imposed on Russia are still difficult to measure, with a significant impact on energy goods and other commodities prices and the consequent adverse effect on Portugal's main partners economic growth.


CFP projections under a no policy change assumption reflect an estimate of the Portuguese economy and public finances time path based on the policy measures adopted in the State Budget for 2021 (still in force), in the Stability Programme for 2021 and in other separate legislation. By definition, they do not constitute a forecast since they do not consider the policy measures that may be approved for that period. The macroeconomic projection points to a slowdown in real gross domestic product (GDP) growth to 4.8% in 2022 and to 2.8% in 2023 (4.9% in 2021). In the short term, this evolution derives mainly from the contributions of private consumption, exports and, to a lesser extent, gross fixed capital formation (GFCF).

In the labour market, a profile of gradual reduction in job creation is anticipated, to 1.1% in 2022 and 0.3% in 2023, in line with the expected recovery dynamics of the economy. The unemployment rate should follow this trajectory, decreasing to 6.4% in 2022 and to 6.1% in 2023.


In the absence of new policy measures, the estimated budget deficit in 2022 is expected to be 1.6% of GDP, reflecting the reversal of almost all fiscal policy measures in response to COVID-19 adopted in 2021 and estimated at 2% of GDP, together with an economic growth slowdown. For 2023 and 2024, a further reduction of the budget deficit is projected, to 0.6% and 0.1% of GDP, respectively, with a stabilisation around a balanced position expected from 2025 onwards.


The debt ratio should decline throughout the projection horizon, reaching 102.7% of GDP in 2026. This represents a decline of about 25 p.p. of GDP from 2021.  


Since this is a no policy change assumption projection, effects of still to legislate measures to mitigate energy price increases impact on households and firms, such as those announced after this Report closing date, are not considered.


A number of  hard to quantify macroeconomic and fiscal risks, and mainly on the downside, impinge on this CFP outlook:

  • The impacts, albeit indirect, caused by the military conflict between Ukraine and Russia and the consequent imposition of economic sanctions on the latter country; 
  • The possibility of below expected RRP implementation, which would necessarily lead to a lower than projected investment flow, generating less output; 
  • The evolution of the pandemic situation;
  • The possibility that, in the event of debtor default, the contingent liabilities related to the state-guaranteed credit lines will materialize in an amount of expenditure higher than that considered in SP/2021;
  • The possibility that TAP may benefit from financial support in addition to that approved under the Restructuring Plan; 
  • The possibility of using the remaining amount of 485 M€ under the Novo Banco Contingent Capitalization Agreement;
  • The budgetary pressures on current primary expenditure (namely on public servants and pension costs and those related to private partners' claims under PPP projects).


In the opposite direction, social contributions growing above remunerations (as observed in the most recent period), a greater elasticity of tax revenues vis-à-vis the tax bases, less public investment supported by national financing or less growth in social benefits may translate into a more favourable evolution than projected for the fiscal balance over this time horizon.

Date of last update: 17/03/2022

Economic and fiscal outlook . Report nº 2/2022 . 17 March 2022