The Executive Board of the International Monetary Fund has concluded its Article IV consultation with Portugal, finding that the economy has remained strong after the post-pandemic recovery, with growth above the euro area average, inflation declining toward target and a third consecutive budget surplus in 2025 reducing public debt to just below 90 percent of GDP. The IMF said the baseline outlook remains favorable but growth is expected to moderate, and warned that external risks, alongside population aging and weak productivity growth, could weigh on activity and push inflation higher. Directors called for additional measures to keep fiscal positions broadly balanced while preserving public investment. They warned that in 2026, large European Union fund inflows combined with higher energy prices could add to inflation pressures and may require tighter fiscal policy. They also said the fuel excise tax reduction introduced during the energy shock should be replaced with targeted support for lower-income households and viable firms in energy-intensive sectors, and encouraged further savings through lower tax expenditures, more efficient spending and additional pension reform. The Board judged the banking sector resilient under severe adverse macro-financial conditions, but urged further work to strengthen the financial policy framework in line with Financial Sector Assessment Program recommendations, monitor housing-market and sovereign exposures and expand the macroprudential toolkit after the introduction of a positive neutral countercyclical capital buffer. Directors also pressed for reforms to raise productivity, including streamlining bureaucracy, improving education and skills matching, preparing for artificial intelligence diffusion, increasing labor market flexibility and working with European Union partners to deepen the single market and integrate savings, investment and energy markets more fully.

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