Yields and PSI Index Hold Steady in Lisbon

Portugal’s 2026 State Budget was met with muted market reaction, signalling investor confidence in fiscal discipline and steady policymaking. The PSI20 Index edged down 0.2 percent, while 10-year bond yields (PT10Y ≈ 3.06%) held firm as markets absorbed the government’s plans without repricing sovereign risk. The budget targets a 2.8 percent deficit and projects GDP growth of 1.9 percent for 2025 after an estimated 2.1 percent in 2024, alongside an inflation forecast of 2.3 percent.

Expenditure priorities centre on energy transition and transport infrastructure, while public-sector wage restraint remains in place to limit fiscal slippage. Labour unions, however, continue to push for above-inflation increases, adding political pressure ahead of next year’s municipal elections. Moody’s reaffirmed Portugal’s Baa2 rating with a stable outlook, citing a credible fiscal framework, prudent debt management, and sustained investor access to low-cost financing.

Analysts describe the stance as market-neutral: a modest fiscal impulse aimed at supporting investment without jeopardising the downward trajectory of public debt, now near 96 percent of GDP. External conditions remain supportive, with the euro (EURUSD 1.09) stable and Brent crude (CL=F ≈ US$81) steady, containing import costs and easing inflation risks.

While consumer spending remains subdued, resilient exports and improving Eurozone PMIs support moderate growth momentum. Fiscal credibility, coupled with predictable policy execution, positions Portugal among the Eurozone’s most stable mid-tier economies. The main test ahead lies in wage negotiations and public spending discipline — factors that will determine whether Portugal sustains its investor-friendly trajectory through 2026.