Portugal

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

Growth still solid in 2025, with investment taking over from tourism

In 2024, growth remained much stronger than in the rest of the region (around 0.5% on average in the eurozone) thanks to buoyant tourism and a rebound in consumption. The Portuguese economy should continue to outperform in 2025, despite the expected slowdown in tourism after two years of exceptional growth. This should be offset by the acceleration in domestic demand. First, private consumption will continue to be buoyed by the ongoing positive growth in real wages thanks to easing inflation and a durably tight labour market, and the reduction in the income tax rate for the majority of households. At the same time, business investment should accelerate as a result of the gradual improvement in financing conditions – the European Central Bank (ECB) having launched its monetary easing cycle in June 2024 – and the reduction in the corporate tax rate from 21% to 19% in 2025 (from 17% to 15% for SMEs on the first €50,000 of taxable income) provided that it is approved and enacted. Above all, public investment is set to rise sharply thanks to the increase in European funds. The country is one of the main beneficiaries of the Recovery and Resilience Plan (RRP), with EUR 13.9 billion in grants and €2.7 billion in loans over the 2021-2026 period. According to the government's timetable, more than a third of the funds should be disbursed in 2025 alone, compared with 20% of the total in 2024. Furthermore, while tourism (17% of GDP and 50% of service exports in 2019) is likely to slow, exports should remain robust thanks to resilient global demand and continued gains in market share, particularly in the automotive, machinery, IT and telecoms sectors. However, the external contribution to growth will be less significant than in 2024, due to a rebound in imports in the wake of investment.

Slight deterioration in public finances

Despite the substantial budgetary support linked to the cost of living, public finances improved considerably in 2022 and 2023, thanks to strong growth in nominal GDP and an outperformance in revenue. Conversely, despite the withdrawal of these support measures, the budget surplus has contracted sharply in 2024 mainly as a result of the decrease in income tax. In 2025, public finances are expected to deteriorate slightly, partly as a result of further tax cuts sought by the centre-right government and partly as a result of increased public investment under the RRP. After being financed almost exclusively by grants between 2021 and 2024 (with a neutral impact on the budget balance), it will be partly financed by loans in 2025, this time with a negative impact on the public accounts. It should be pointed out, however, that in the absence of a Parliamentary majority, the centre-right government will necessarily require the support of the Socialist Party (PS) or the far-right Chega party to pass its reforms and secure approval for the 2025 budget, both of which are far from certain. While the public accounts could return to a (slight) deficit in 2025, public debt will remain on a clear downward trajectory.

After returning to a large surplus in 2023, the current account improved further in 2024. It should remain in substantial surplus in 2025, despite the rebound in imports, which will widen the structural deficit in the goods balance. However, the deficit will continue to be more than offset by the surplus on the balance of services, fuelled mainly by income from tourism. Similarly, the surplus on the balance of income will be maintained (0.7%), with remittances from the Portuguese diaspora making up for dividends repatriated by foreign investors. Last, with the country receiving even greater European funding than in 2024, the capital account surplus will increase even further.

Centre-right minority government promises political instability

Early parliamentary elections in March 2024 following the resignation of former Socialist Prime Minister Antonio Costa after he was named in an investigation into influence peddling resulted in a fragmented Parliament. Having led the polls, the PSD (centre-right, 80 seats out of 230) secured the appointment of its leader Luis Montenegro as Prime Minister despite the absence of a majority. Thus, in order to pass reforms, the PSD will require the support of the Socialist Party (78 seats) or the far-right Chega party, whose number of MPs jumped from 12 to 50 in 2024, and with which the PSD has refused to form a governing coalition. Against this backdrop, and despite the Socialists' willingness to negotiate, a vote on the 2025 budget cannot be guaranteed. In the event of failure, the President of the Republic may be forced to dissolve Parliament again, as was the case in 2021. Whatever the outcome of these negotiations, the currently fragmented Parliament spells a period of uncertainty and possible political instability.

Last updated: August 2024

Payment

Cheques are frequently used in Portugal and it is common practice to establish payment plans with post-dated cheques which are payable on presentation. If the bank account is not sufficiently provisioned, they are borne by the bank up to a maximum amount of €150. In the case of bounced cheques, an individual person or a company is prohibited from receiving or issuing further cheques for a maximum term of two years (or eventually six years, if there is a court decision).

Bills of exchange are commonly used for commercial transactions in Portugal. In order to be valid, they are subject to stamp duty, the rate of which is set each year in the national budget. A bill of exchange is generally deemed independent of the contract to which it relates.

Cheques, bills of exchange, and promissory notes offer effective guarantees to creditors against defaults, as they are legally enforceable instruments which entitle debt holders to initiate “executory proceedings”. Under this process, creditors can petition the court to issue a writ of execution and notify the debtor that this has been done. When debtors still fail to settle their debts, the creditors may request that the court officer issues an attachment order against the debtors’ property.

Electronic transfers via the SWIFT network are widely used by Portuguese companies and are a quick, reliable and economic means of payment. If the buyer fails to make a transfer, the legal recourse is to institute ordinary or summary proceedings, based simply on an unpaid invoice.

In the event of a payment default, creditors are not required to issue a protest notice before bringing an action to court, but such a notice can be used to publicise the matter and thus put pressure on debtors to honour their obligations, albeit belatedly.

Debt collection

Amicable phase

Amicable collection begins with the debtor being sent four demands for the payment of the principal amount. Interest on the principal can be requested, but is normally difficult to collect in Portugal. Payment agreements subsequently made between creditors and debtors can include guarantees to ensure payments will take place as agreed.

Interest rates are set by the Treasury Department. The rates are published in the Diário da República during the first fortnight of January and July each year, and are applicable for the following six months. These interest rates are applied by default, unless the parties involved in a commercial agreement have contracted otherwise.

Legal proceedings

Fast-track procedure

The order to pay procedure (Injunção), which is applicable to uncontested commercial claims, was established in March 2003. These proceedings, whatever the amount involved, are heard by the court in whose jurisdiction the obligation is enforceable, or the court where the debtor is domiciled. Since September 2005, these injunctions can also be served electronically.

The National Injunctions Office (Balcão Nacional de Injunções, BNI) has exclusive jurisdiction throughout the country for the electronic processing of order to pay procedures.

Ordinary proceedings

In cases of disputed claims, creditors can initiate formal, but more costly, declarative proceedings (acção declarativa), to obtain a ruling which establishes their right to payment. Once the claim is filed with the court and the debtor notified, a defence can be filed within 30 days. Failure to reply entitles the court to deliver a default judgment. If the judge rules in favour of the creditor, the court may order damages, if requested by the demanding party. They then need to initiate “executive proceedings” (acção executiva) to enforce the court’s ruling.

Under the revised Code of Civil Procedure, any original deed established by private seal (i.e. any written document issued to a supplier) in which the buyer unequivocally acknowledges his deb, is deemed to be an agreement that is enforceable by law. Since 2013, when the most recent revision of the Code of Civil Process was made, written signed payment plans can only be used to initiate executory proceedings when they have been recognised by a notary.

In the scope of the recent restructuring of Portuguese courts which has been ongoing since 2014, more courts specialising in commercial issues have been created. The number of Courts of First Instance has been reduced to 23 (in each district capital), while there are now 21 specialised courts (Secções de Competência Especializada) for commerical issues (secção de Comercio), commercial issues. These latter sections deal specifically with insolvencies and commercial company matters. During this same period, 16 sections specialising in Enforcement Procedures (Secções Especializadas) have also been created.

Legal actions in Portugal can take several years, depending on the complexity of the case. Enforcement proceedings can be faster, depending on the existence of assets.

Enforcement of a Legal Decision

Once all avenues of appeal have been exhausted, a judgment normally becomes final and can be enforced. If the debtor fails to comply with the decision, the creditor can request compulsory enforcement mechanisms before the court – either through an Attachment Order, or by allowing payment of the debt to be obtained from a third party which owes money to the debtor (Garnishee Order).

Foreign awards rendered in other EU countries benefit from specific enforcement mechanisms, such as the European Enforcement Order (which can be used if the claim is undisputed), or the European Small Claims Procedure. Awards rendered in non-EU countries must be party to a bilateral or multilateral agreement with Portugal on the recognition and enforcement of court decisions.

Insolvency Proceedings

Out-of court

A special extrajudicial administrative procedure (Regime Extra Juditial de Recuperação de Empresas, RERE) came into effect on July 1, 2017. This procedure for restructuring company debts is carried out by specialised mediators. It has been designed to enable creditors and debtors to reach a compromise, in a confidential and consensual manner.

Restructuring proceedings

The reforms implemented in 2012 included the introduction of a special rescue procedure (Processo Especial de Revitalizaçao, PER). The aim of this new procedure is to ensure the recovery of debts from debtors that are in a ‘difficult economic situation’ without starting an insolvency procedure. The management is obliged to request permission from the provisional judicial administrator in order to perform “particularly relevant acts”. During this process, the administrator prepares a recovery plan which must be approved by the creditors and a judge.

Bankruptcy

Insolvency law in Portugal also provides for insolvency proceedings (Processo de Insolvência). The main goal of these proceedings is to obtain payment for the company’s creditors through the implementation of an insolvency plan. Insolvency plans can be established under which the company is restructured and can continue to operate. Should this prove unfeasible, the insolvent’s estate is liquidated, and the subsequent proceeds are distributed among the creditors.