The Portuguese labour market has remained stable despite various domestic and global challenges. In the previous year (2024), employment figures even reached record levels. Nevertheless, the Bank of Portugal cautions that employment began to slow gradually at the start of 2025, a trend attributed to tighter immigration regulations and slower economic growth.

“The count of employees registered with Social Security kept rising in 2025, achieving a historic high. Yet, a deceleration was evident. Annual employment growth fell to 2% by September, down from 2.6% in the first three quarters of 2025. This compares to average annual growth rates of 3.4% in 2024 and 5% in 2023,” the central bank notes in its March economic bulletin.

Changes in the foreign workforce

This slowdown is mainly due to changes in the foreign workforce. The impact of Portuguese workers on total employment growth rose modestly—from 0.3 percentage points in 2024 to 0.7 in the first three quarters of 2025. During the same period, the share attributed to foreign workers declined from 3 percentage points to 1.9 percentage points.

The decline is sharpest among workers from India, Bangladesh, Nepal, and Pakistan, whose contribution dropped from 0.9 points in 2024 to 0.3 in January–September 2025. Year-over-year drops started in July.

Brazilian employees

A similar reduction occurred among Brazilian employees, whose contribution dropped from 0.8 to 0.3 percentage points. These decreases were partly balanced by a rise in the contribution of workers from Portuguese-speaking African countries (PALOP). Their contribution increased from 0.9 to 1.1 percentage points, according to the Economic Bulletin.

The reduced growth in foreign employment is explained by a drop in net migration among non-Portuguese nationals, following the high levels seen during 2022 and 2023, according to the Bank of Portugal.

New immigration laws

This trend is linked to new immigration laws and a cooling economy, especially in sectors that previously surged after the pandemic. The government led by Luís Montenegro has opted for more regulated immigration, banning entry through the expression of interest system.

This marks a shift from the more open policies of earlier administrations under António Costa.

“Foreign job growth slowed due to lower net migration, after highs in 2022 and 2023. This reflects new immigration policies and weaker economic conditions, the Bank of Portugal stated.

Working sectors

Conversely, the central bank notes that the employment slowdown during the first nine months of 2025 was most evident in sectors such as accommodation and food services. Their contribution dropped from 0.5 to 0.2 percentage points. In agriculture and fishing, the contribution fell from 0.2 to -0.1. In commerce, it declined from 0.5 to 0.3.

Industry’s contribution to employment also turned negative, slipping from zero to -0.1 percentage points. Construction maintained a positive effect at 0.5. The Economic Bulletin notes that these industries generally offer wages below the national average.

Meanwhile, Public Administration, health, and education saw their impact grow from 0.6 to 0.8 points.

The Bank of Portugal says foreign labour has driven job growth, but its influence is fading. Immigration will likely keep falling, the Bulletin projects.

Given Portugal’s ageing population, the central bank argues that future economic growth must increasingly depend on productivity gains rather than further job expansion.

Focus on workforce skills

“Achieving this goal requires a stronger focus on workforce skills, investment, and innovation—especially harnessing the potential of automation, digitalisation, and artificial intelligence. Sustainable improvements in real wages and overall well-being will ultimately depend on robust growth in worker productivity,” concludes the Bank of Portugal, under the leadership of Álvaro Santos Pereira.