The Government, in its proposed 2026 State Budget report, examined “the impact of certain risks, both external and internal, on major macroeconomic aggregates and public finances,” identifying four risks with the most significant potential effects.
It begins by discussing a potential reduction in external demand growth by 2 percentage points (pp) from projections, which “would have a negative impact on the real growth of the gross domestic product (GDP) by -0.5 pp.”
Additionally, this risk, especially amidst ongoing uncertainty regarding tariffs imposed by the United States, would also cause the budget balance of Public Administrations, as a percentage of GDP, to decrease by 0.1 pp in 2026. The reduction in the public debt ratio would be less pronounced due to lower nominal GDP growth and a reduced budget balance.
The Government also assessed the impact of a potential 20% increase in oil prices (in dollars), which “would result in a 0.1 pp reduction in GDP growth in 2026.”
Another concern in the document is the increase in short-term interest rates by 2 pp compared to the base scenario, which “would negatively impact real GDP growth by about 0.2 pp.”
In this case, the Public Administrations’ budget balance would be reduced by 0.3 pp in 2026, “primarily due to increased spending on interest and social benefits, and reduced revenue due to lower consumption growth,” while the public debt ratio would rise by 0.5 pp.
Finally, another risk is the reduction in domestic demand growth by 1 pp, negatively impacting real GDP growth by 0.5 pp, largely supported by consumption.
In this scenario, the budget balance would also decrease, by approximately 0.2 pp of GDP, resulting in a slower reduction of public debt as a percentage of GDP, with the public debt ratio increasing by about 0.5 pp compared to the base scenario.
The Government submitted the OE2026 to parliament today, just ahead of the deadline and three days before Sunday’s local elections.
In the macroeconomic scenario, the PSD/CDS-PP Government forecasts GDP growth of 2% this year and 2.3% in 2026.
The executive aims to achieve surpluses of 0.3% of GDP in 2025 and 0.1% in 2026. The debt ratio is expected to decline to 90.2% of GDP in 2025 and 87.8% in 2026.
The proposal is set to be discussed and voted on broadly between October 27 and 28. The final global vote is scheduled for November 27, following detailed debate proceedings.
