The positive outlook reflects the assessment that Portugal's economic growth "will continue to support increasing levels of wealth, despite current volatility," the published decision reads.

The financial rating agency considers that "the prudent conduct of policies, despite political fragmentation, will allow the State to absorb potential budgetary pressures, such as demographic changes and defence needs, without compromising the ongoing reduction of net public debt."

S&P forecasts that Portugal's economic growth will remain resilient until 2026, with a projected GDP growth of 1.7%, remaining at similar levels from 2027 onwards.

Regarding the increase in energy prices, caused by the disruptions in the Strait of Hormuz, the agency estimates that "it will have a moderate impact on the Portuguese economy in 2026, given the country's low energy intensity, the resilience of the tourist season so far and the acceleration of capital expenditures under the Next Generation EU (NGEU) program".

After 2026, and barring another external shock, S&P forecasts that growth will remain at similar levels, as "the fall in energy prices will support net exports and private consumption will offset the slowdown in investment after the peak of NGEU".

Regarding public finances, the agency expects public debt to continue its downward trajectory, while acknowledging that emergency support for the energy sector and reconstruction costs related to climate events may result in budget deficits in 2026 and 2027.

"We project that net public debt will fall to 75% of GDP by 2029," the text says, a trajectory that, driven by prudent fiscal policy, "provides the necessary margin to absorb long-term structural pressures, such as increased defence needs and an ageing population."

S&P forecasts a slight deterioration to a deficit of 0.2% of GDP this year, "accounting for the fiscal impact of support measures in response to Atlantic storm Kristin (0.4% of GDP) and support measures for the energy sector (0.1% of GDP)."

The negative impact should be mitigated by the effects of revenue transfers from 2025, by the non-application of new reductions in IRS withholding tax, by robust private consumption and by extraordinary inflows, such as the distribution of dividends from Caixa Geral de Depósitos (0.4% of GDP) and revenues from the sale of social housing (0.1% of GDP), the agency estimates.

After 2026, the budget balance should remain balanced, it anticipates, as emergency measures and the intense capital expenditure cycle driven by NGEU subsidies are gradually phased out.

This was S&P's second assessment of Portuguese debt, which in February decided to maintain Portugal's rating at A+ but changed the outlook from stable to positive.

The rating is an assessment assigned by financial rating agencies that has a major impact on the financing of countries and companies, as it assesses credit risk.