Fitch upgrades Portugal's rating to A with stable outlook

Fitch cited several reasons for upgrading Portugal's rating, including continued debt reduction, a balanced budgetary position, reduced deficits from 2026 onwards, increased exports, and resilient growth.

For Fitch, Portugal's budgetary performance is "superior to that of most of its similarly rated peers", with the agency expecting a "budget surplus of 0.1% of Gross Domestic Product (GDP) to be maintained in 2025" and the fall in public debt reflects "robust growth" and considerable surpluses .

The agency estimates GDP growth of 1.8% in 2025, "driven by rising real incomes, a robust labor market, and public investment supported by the Recovery and Resilience Plan (RRP), while net exports will have a modest impact on growth, in a context of weaker external demand and higher imports."

The agency forecasts that "growth will accelerate to 2.2% in 2026, due to resilient consumption, tax cuts and faster implementation of the RRP , while lower interest rates and reduced uncertainty support private investment."

For 2027, it projects that “growth will slow to 1.7%, as public investment related to the RRP normalizes.”

At the same time, Fitch forecasts that "the general government balance will show a moderate deficit of 0.7% of GDP in 2026", reducing to "a deficit of 0.4% of GDP in 2027", taking into account the reduction in investment.

The agency also highlighted the surplus in the external balance, highlighting that this "improvement reflects a sharp increase in exports of services, particularly in tourism, and a reduction in the energy deficit, supported by lower energy import costs and an increase in the share of renewable energy."

Fitch also highlighted the decline in private sector debt as one of the factors it took into account in its decision to upgrade Portugal's rating .

The agency highlighted the country's "structural strengths," sustained "by membership of the EU and the eurozone," but noted that "they are offset by still high levels of public and external debt inherited from the past."

For the agency, the early elections were not a factor that disturbed its assessment, indicating that "the results support broad political continuity, with limited disruptions to budgetary policy and no significant obstacles expected for the approval of the State budget for 2026."

The agency believes that risks to growth are low, driven mainly by "external challenges, including a sharper slowdown among Europe's main trading partners."

The labor market "remains strong," he highlighted, also predicting that inflation will stabilize "at around 2.0% in 2025-2027, below the 2.7% recorded in 2024, with a gradual decrease in pressures on service prices."

Regarding the banking sector, according to Fitch, "Portuguese banks are well capitalized," with the non-performing loan ratio having decreased.

Fitch thus joins other credit agencies that have raised Portugal's rating , such as DBRS , which rates the sovereign debt at A (high) and Moody's at A3.

S&P upgraded its rating from A to A+, just six months after another upgrade.