The agency justifies that the improvement in the outlook for Portugal reflects the assessment that the country’s credit vulnerabilities linked to the pandemic seem “to be receding, while the macroeconomic outlook is improving”.

In the report accompanying the assessment, DBRS points out that despite the abrupt shock caused by the pandemic, which led to an 8.4% recession in 2020, the Portuguese economy managed to recover last year and should return to the pre-pandemic level in the second quarter of this year, considering that the crisis does not appear to have had serious long-term economic consequences.

“In addition, growth prospects are strong in the coming years, supported by greater political stability following the ruling majority resulting from the January 2022 elections, a population with the highest vaccination rates in Europe and large transfers from the EU [European Union] that aim to improve the productive capacity of the Portuguese economy”.

Possible changes

The report also explains that Portugal's rating could be revised upwards if the country's macroeconomic performance continues to improve and the public debt burden returns to a downward trend. On the other hand, the outlook could be revised downwards to ‘stable’ if growth prospects deteriorate “significantly” and could cut the rating if political commitment to sustainable macroeconomic policies declines, with an impact on public finances.

In the analysis, external demand is identified as a risk for the Portuguese economy, due to the weight of tourism, since “it is not clear when the sector will fully recover”.

It also stresses that “rapid budget consolidation” is “fundamental”, because public accounts may face challenges associated with possible credit executions related to guarantees granted during the pandemic or with additional financing needs for state-owned companies, leaving the warning at the same time that “adverse demographic trends” could weigh on spending in the medium term.


The agency also notes that financial stability risks have decreased in recent years, but warns that the scenario could change if the pandemic crisis “drastically” affects families and companies, noting that “the direction of insolvencies in the private sector continues to be an important unknown".

The Canadian agency was the first to comment on Portugal this year, marking the beginning of the evaluations of the main financial rating agencies scheduled for this year. According to the provisional calendars for updating the ratings, DBRS is expected to comment on Portugal again on August 26.