Opinion on the macroeconomic forecasts underlying the Draft State Budget for 2027

Key Considerations

This Opinion has once again been drawn up against a backdrop of high uncertainty. In the September Economic and Fiscal Outlook, the CFP assessed the risks surrounding the macroeconomic scenario as being predominantly on the downside. It highlighted the resumption of military operations in the Persian Gulf, the rise in the price of oil and refined products, and the ECB’s more restrictive monetary policy stance. Domestically, it noted the end of the RRP, which will make investment growth more dependent on the private sector.

Taking the risks into account, the macroeconomic scenario underlying the DSB/2027 appears, on the whole, to be statistically probable. Nevertheless, as explained in this Opinion, it should be noted that there are downside risks to the forecast for real GDP growth in 2027. With regard to inflation, there is a potential underestimation in both 2026 and 2027.

In 2026, the forecast GDP growth of 2.3 per cent (in volume terms) is highly likely to materialise. Given the growth observed in the first half of the year, growth of just 1 per cent in the second half of the year would be sufficient to achieve this. Even if economic activity were to stagnate, annual growth would stand at around 2.1 per cent.
In 2027, the forecast real growth of 2.1 per cent exceeds that of all benchmark institutions and lies at the upper limit of the 30 per cent confidence interval for those forecasts and projections. The Ministry of Finance’s forecast assumes an acceleration in economic activity over the coming year: quarter-on-quarter growth of approximately 0.6 per cent per quarter, double the rate implied for the second half of 2026.
The macroeconomic scenario points to inflation of 2.9 per cent in 2026, which appears unlikely. According to clarifications provided by the Ministry of Finance, the inflation forecast for 2026 corresponds to the average of the figures recorded between January and August. The forecast implies that energy prices will be, by the end of the year, approximately 7 per cent lower than those recorded in September. This is inconsistent with the oil price trajectory assumed by the Ministry of Finance itself. The forecast for 2027 is below the average of the projections by leading institutions, despite the Ministry of Finance assuming the highest oil price among the scenarios considered. This poses an upside risk to the inflation forecast.
The analysis confirmed that the nominal growth forecast by the Ministry of Finance for 2027 is in line with the latest available independent projections. This is due to a forecast for the GDP deflator that is considered prudent and plausible.
The employment forecast (1.4 per cent) is the highest amongst the benchmark institutions and lies at the upper limit of the 30 per cent confidence interval. It is based on growth in the labour force (1.3 per cent) exceeding that of the working-age population (0.6 per cent), which implies a significant increase in the labour force participation rate. The Ministry of Finance’s forecast for compensation per employee is also the highest amongst the benchmark institutions. The combined effect of these two factors may result in increased risks to revenue derived from the wage bill.

Conclusion

The conclusion of this analysis by the Portuguese Public Finance Council takes into account the principles set out in Article 8 of the Fiscal Framework Law (Law No. 151/2015 of 11 September, as currently worded): “The fiscal projections underlying fiscal planning documents must be based on the most likely macroeconomic scenario or on a more prudent scenario”. This same guiding principle of using realistic forecasts for the conduct of fiscal policies is also enshrined in European legislation, in particular in the Stability and Growth Pact and in Council Directive 2011/85/EU of 8 November 2011 (revised), which lays down the requirements applicable to Member States’ fiscal frameworks.

Pursuant to Article 4(4) of Regulation No 473/2013 of the European Parliament and of the Council of 21 May 2013, following an analysis of the macroeconomic forecasts underpinning the Draft State Budget for 2027 of the XXV Constitutional Government, based on currently available information and taking into account the identified risks, and given that the projected nominal growth for 2027 complies with the aforementioned legal principles, the Portuguese Public Finance Council endorses the macroeconomic forecasts presented, noting that the risks to real growth are tilted downwards.