The European Stability Mechanism admits “downside risks” for Portugal’s economic growth this year due to external energy dependence facing the current crisis, high housing prices, delays in RRP reforms, and the effects of storms.
“The Portuguese economy is expected to remain resilient in 2026, [but] Portugal’s relatively high external energy dependence leaves the country exposed to high energy prices following the conflict in the Middle East, which could increase inflation and weigh on economic growth, including through a slowdown of main trading partners,” the ESM notes in its annual report, published today and to which the Lusa agency had access.
In a chapter dedicated to Portugal, the eurozone’s permanent stability fund lists “downside risks to the growth” of the Portuguese economy, which “stem from episodes of global uncertainty, worsening geopolitical tensions, high housing prices, delays in reforms and investments funded by the European post-pandemic recovery fund [the mechanism that finances the Recovery and Resilience Plan — RRP], as well as the storms that occurred in early 2026.”
Recalling also that “population aging, climate change, and rising defense costs represent significant long-term fiscal challenges,” the ESM suggests that, to face this context, the country must “ensure the effective implementation of investments funded by the RRP and pursue fundamental structural reforms.”
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The report comes at a time when the war in Iran, triggered by Israeli and North American attacks, continues to pressure energy markets, when high housing prices in Portugal hamper access to the residential market, and when calls increase to accelerate RRP reforms and investments, whose execution deadline ends at the end of next August.
Added to these factors are the effects of extreme weather events, such as the storms at the beginning of the year in Portugal, which increased the country’s vulnerability and impacted production and infrastructure.
For this community institution, Portuguese fiscal policy “must remain prudent and direct defense spending to investment projects with positive effects on the rest of the economic fabric,” as “these efforts are essential to stimulate growth, create jobs, and safeguard long-term public debt sustainability.”
In the report, the ESM points out that the Portuguese economy maintained solid growth in 2025, driven by private consumption and rising incomes, while inflation slowed down, employment reached record levels, and public debt fell to less than 90% of GDP due to fiscal surpluses.
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The document also highlights the strong performance of the banking sector, with historic profits and high levels of solvency, liquidity, and asset quality. The ESM adds that Portugal maintains the capacity to meet all obligations due to the European Financial Stability Facility in 2026.
“The assessment of the European Stability Mechanism indicates that the risks of market stress remain low in the short term,” it notes. Portugal was under financial assistance during the sovereign debt crisis between 2011 and 2014.
