Portugal on the “right path” despite political crisis says S&P

The US ratings agency Standard & Poor’s (S&P) said this week that early elections will have no impact on the rest of Portugal’s macroeconomic situation, stressing that its disciplined fiscal path remained on the “right track”.

The rating agency does not see the scenarios of a new minority government or the State Budget for 2026 not being passed as risks, as the country can operate with the “responsible Budget of 2025”.

According to the agency, which on February 28 raised Portugal’s rating from A to A with a positive outlook, the main risk could come “beyond 2025, if (Portugal’s) fiscal performance deteriorates”.

“We expect that in 2025 Portugal will post a General Government budget surplus for the third consecutive year,” it said in a statement. “The 2025 Budget has already been approved and previous episodes of political transition have not led to significant economic disruption or budgetary slippage”.

S&P also added that the main policy milestones needed to unlock the large NextGenerationEU funds, which finance Portugal’s Recovery and Resilience Plan (RRP), remain protected from the political cycle, as they are incorporated into the 2025 Budget and can proceed without parliamentary approval.

“Beyond 2025, risks could arise if fiscal performance deteriorates,” the financial rating agency warned.

In an analysis of the political scenario, it explained that “although the main parties of the left and right generally support sound fiscal policies, the far-right party Chega is less aligned with this consensus”.

Portuguese governments can be formed without the support of the majority, but budgets can only be approved with the support of the majority, it recalled.

“However, even in the scenario of another minority government, if the 2026 Budget is not approved, Portugal will be able to continue to operate with the fiscally responsible 2025 Budget”, that is, on a twelfths basis, “ensuring that public debt continues to decrease as a percentage of GDP”.

“In our opinion, the early elections will have no impact on the rest of Portugal’s macroeconomic profile,” S&P stressed.

“This includes its track record of moderate current and capital account surpluses, in a context of expected average GDP growth of around 2%, or 1.6% on a per capita basis,” it concluded.