Standard & Poor's (S&P) has unexpectedly elevated Portugal's sovereign debt rating to A+ with a stable outlook, a move that surprised analysts who had anticipated no changes following a previous upgrade six months prior. This latest revision signals a strong endorsement of Portugal's economic management and resilience in the face of global uncertainties.

The upgrade is primarily attributed to S&P's expectations of continued deleveraging of the Portuguese economy, with forecasts indicating persistent current account surpluses despite potential global trade headwinds. The agency highlighted Portugal's relative insulation from direct impacts of EU-US trade disputes, owing to its service-oriented economy and a low reliance on US exports, with only 7% of its exports destined for the US market. Furthermore, S&P anticipates that the robust tourism sector will partially offset any negative effects of tariffs on the Eurozone's economic growth.

S&P projects that Portugal will maintain a healthy fiscal trajectory, even with a fragmented parliament and a somewhat unstable domestic political landscape. The agency anticipates that the government can secure the approval of the 2026 State Budget, potentially with the abstention of the PS party, or maintain fiscal discipline through provisional twelfths if necessary. The report also forecasts a significant reduction in public debt as a percentage of GDP, projecting it to fall to 81.9% by 2028, a substantial decrease from 94.9% last year. Economic growth is expected to reach 1.7% this year, accelerating to 2.2% next year, before settling at 1.7% in 2027 and 2028. The labor market is also expected to remain strong, with an average unemployment rate of 6.5% between 2025 and 2028.

Key Indicators

Market Signal: The upgrade to A+ signifies enhanced investor confidence and potentially lower borrowing costs for Portugal, making its bonds more attractive.
Leading Indicators: Portugal's projected current account surpluses, robust tourism sector, and declining debt-to-GDP ratio are key data points supporting the positive outlook.

Regional Perspective

This upgrade positions Portugal favorably within the European economic landscape, reinforcing its status as a stable investment destination. The resilience of its service sector and tourism industry provides a unique buffer against global economic shocks, offering a distinct advantage compared to more export-dependent economies.