This upgrade marks a substantial step up from the previous rating of BBB+, which was assigned in October 2022. Alongside this, Portugal's country ceiling was elevated to AAA, underscoring increasing confidence in the nation’s economic resilience.

Portugal's economic outlook is set to remain positive over the next few years, with projections indicating moderate growth and steady improvements in public finances. By the end of 2024, the country is expected to achieve a modest budget surplus, helping to reduce the government debt-to-GDP ratio to 95.8%, down from 99.1% at the end of 2023. This positive trend is projected to continue, with forecasts showing further debt reduction to 88.1% by 2026 and to 82.5% by 2028.

Fitch attributes this optimistic outlook to several key factors, including high primary surpluses, ongoing external deleveraging, and sustained economic growth. The country’s prudent fiscal policies and effective management of public debt will remain critical to maintaining financial stability. Moreover, Portugal’s substantial cash buffers and the high proportion of fixed-rate debt provide an essential safety net against global economic uncertainties.

Several sectors are crucial to Portugal’s economic performance. Private consumption and investment continue to play a significant role, buoyed by a recovering economy. The tourism sector, which rebounded strongly following pandemic-related disruptions, remains a critical driver of both exports and employment.

The successful implementation of Portugal's Recovery and Resilience Plan (PRR), supported by European Union funding, has further bolstered public and private investment. This influx of capital is expected to enhance infrastructure, promote innovation, and stimulate economic activity across various industries, ensuring sustained growth.

Portugal's commitment to fiscal prudence has fortified its economic outlook by reducing vulnerabilities and enhancing competitiveness. Fitch emphasizes the importance of external deleveraging, which has diminished reliance on foreign financing and increased the economy's resilience to external shocks. Additionally, the combination of a stable labor market, growing exports, and strong institutional frameworks significantly contributes to this positive outlook.

The recent upgrade in Portugal's Fitch rating underscores the country’s impressive fiscal management and economic growth potential. With ongoing reductions in public debt, strong investment, and a thriving tourism sector, Portugal is well-positioned for further economic stability and growth in the coming years. While challenges remain on the horizon, this positive outlook signals that Portugal is set to strengthen its economic standing on the global stage, paving the way for a brighter future.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes