The OECD forecasts that GDP will continue to outpace both the OECD and the euro area, growing by 2.2 percent in 2026 and 1.8 percent in 2027, supported by strong domestic demand. Inflation is projected to moderate further, from 2.2 percent in 2025 to 2.0 percent in 2027.

Structural reforms needed to sustain growth

The report notes that structural reforms, including strengthening public finances, improving employment, boosting productivity and advancing the climate transition, will be essential to achieving sustainable improvements in living standards. Over the next two decades, Portugal’s working-age population is expected to shrink by 16 percent, while labour productivity remains below the OECD average, indicating room for improvement to support long-term growth.

Public finances have improved since the COVID-19 pandemic, with public debt at 93.6 percent of GDP in 2024 and expected to decline further to 84.9 percent by 2027. Presenting the survey in Lisbon alongside Portugal’s Deputy Finance Minister José Maria Brandão de Brito, OECD Director of Country Studies Luiz de Mello said Portugal’s “strong economic performance and efforts to consolidate public finances are commendable”.

He added that improving public spending efficiency would be key to further reducing debt relative to GDP over the medium term, while accommodating growth-enhancing investments in infrastructure, education, and research, and addressing spending pressures linked to population ageing.

The report also highlights the need to raise employment participation to support public finances. While the effective retirement age has increased in line with life expectancy, further measures could help extend working lives, including targeted reskilling, additional counselling, more flexible work arrangements and a gradual tightening of early retirement options. Reducing tax expenditures, including value-added tax exemptions, and cutting red tape could also help firms become more competitive, particularly in the services sector.

Housing supply constraints weigh on affordability

Housing affordability challenges reflect long-standing weaknesses that have limited supply responses to rising prices. High construction costs and slow, complex permitting procedures are holding back investment in new housing. The OECD suggests that shifting part of the tax burden from transaction taxes towards regular property taxes, alongside stronger taxation of underused housing, could help bring more homes onto the market. Increased investment in social housing, combined with more targeted support for low-income groups, is also identified as a priority.

Climate transition presents further challenges

Efforts to reduce greenhouse gas emissions will be necessary to meet climate targets, the report says. Strengthening carbon pricing could accelerate emissions reductions, provided it is accompanied by targeted support for vulnerable groups. Increased investment in public transport and charging infrastructure will be vital to reducing transport emissions, which currently account for approximately one-third of total emissions. The OECD also highlights the need for broader private insurance coverage against climate risks and for improved coordination and capacity across municipalities to support climate change adaptation.