Growth eludes the Portuguese economy in Q1

Portugal’s economy switches to be the Euro area’s worst performer: According to a preliminary reading, the economy lost its footing at the outset of 2025, contracting 0.5% on a seasonally adjusted quarter-on-quarter basis in the first quarter. The result was the weakest among Euro area countries, and contrasted with Q4 2024's downwardly revised 1.4% expansion, which had placed Portugal among the region’s top performers. Moreover, Q1 marked the sharpest decline since Q1 2021. Meanwhile, year-on-year economic growth decelerated to 1.6% from 2.9% in the fourth quarter of last year and was the weakest since Q2 2024.

Broad-based deterioration chokes economy: While not providing a complete breakdown, the statistical office noted that Portugal’s sequential downturn reflected deteriorations across the board. Net trade detracted 0.5 percentage points from the headline reading after being the engine of growth in Q4 2024, while domestic demand’s contribution fell to zero in Q1. Monthly data bears this out. Externally, weaker global car demand drove goods exports to fall from Q4’s average in January–February, and an annual fall in key tourist arrivals in Q1 signals weakness in the sector. Domestically, an acceleration in inflation and rising political uncertainty following the government’s collapse weighed on consumer sentiment, hinting at a weaker private spending outturn; retail sales lost sequential momentum in the quarter. More positively, industrial output picked up pace. A complete breakdown will be released on 30 May.

Growth to return and stabilize ahead: After Q1’s poor performance, the economy should be regaining its footing in Q2, and our panel then sees sequential growth remaining broadly stable in Q3–Q4. As a result, our Consensus is for GDP growth to outpace 2024’s rate and settle around the preceding 10-year average of 2.1% in 2025. Still, risks are tilted to the downside and include rising political fragmentation, slower-than-expected absorption of EU funds and a slowdown in the global economy due to mounting U.S. protectionism.

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