Families partly responsible for Portugal’s GDP growth

Portuguese families were partly behind Portugal ’s growth success story in 2025 highlighted by the UK magazine The Economist.

Portugal was elected the ‘economy of the year’ for 2025 partly on the back of record consumer spending from families supporting growth.

Portugal’s choice by the Economist was put to good use as a marketing tool by the Portuguese government which recognised it as positive as did the country’s economists.

However, there have been those who have poured cold water over the hype. The Economist chose Portugal after comparing it with 36 advanced economies and based on five indicators which give a rather limited and simple snapshot of what is really happening in the country. So just how far is Portugal really doing better than most of its European partners?

The analysis looked at like-for-like growth in the third quarter of 2025, the like-for-like increase in employment (latest variation) for the same period, the underlying inflation rate in October, the extent of inflation (variation in proportion to products with price increases above 2%), and the increase in shares values on the stock market.

The GDP rate of growth is indeed one of the indicators where Portugal stood out at the time of the evaluation. In the third quarter the country’s surged 2.4% in like-for-like terms – above the European average and also above the majority of those countries on the Economist’s list.

And according to the National Statistics Institute (INE) this growth was partly down to family consumption which contributed 2.5% to growth.

This means the sum of all the other GDP components (Investment, Public Consumption and Overseas Demand) and in this case the growth was driven by family consumer demand.

But is growth driven by consumer spending real viable growth? In September, the President of the Council of Public Finances – a budget responsibility watchdog – warned of the risks associated with this economic growth model.

“There’s a risk of increased imports and therefore a risk of starting to create an imbalance of our overseas balance of payments accounts” said Nazaré Costa Cabral at the time.

“It is important that Portugal’s economic growth model is fundamentally based on our capacity to export and be more competitive,” she added.

And in an analysis on the Portuguese economy published this week, BPI’s Chief Economist, Paula Carvalho backed this up by saying that “vulnerabilities” were detected in Portugal’s overseas accounts.

The economist pointed out that the current account balance between payments paid and received from overseas has significantly deteriorated over 2025 by around €2Bn or the equivalent of 0.7% of GDP in the first nine months of the year compared to the same period in 2024.

And the expectations of the Portuguese government, CFP and European Commission is that internal demand in the shape of private and public consumption and investment will continue to drive GDP and its contribution will be greater than the growth of the economy itself in terms of productivity and exports both in 2025 and 2026.

Moreover, Brussels says that domestic demand will continue to contribute more towards GDP than economic growth from the sale of goods abroad to 2027 since net external demand is continuing to