Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Portugal
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Portugal, budget policy, economic policy, economic recovery, economic reform, employment policy, health care, macroeconomics, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 3.6.2026  COM(2026) 222 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Portugal {SWD(2026) 222 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Portugal 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29 April 2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No  1466/97  (1),  and  in 
particular Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2024/1263  specifies  the  objectives  of  the  economic  governance 
framework,  which  aims  at  promoting  sound  and  sustainable  public  finances, 
sustainable  and  inclusive  growth  and  resilience  through  reforms  and  investments,  as 
well  as  preventing  excessive  government  deficits.  The  Regulation  stipulates  that  the 
Council  and  the  Commission  conduct  multilateral  surveillance  in  the  context  of  the 
European Semester in accordance with the objectives and requirements set out in the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  The  European  Semester 
includes, in  particular, the formulation and the surveillance of the implementation of 
country-specific recommendations. 

(2) 

On  16 July 2025,  the  Commission  adopted  its  proposal  for  a  regulation  establishing 
the European Fund for economic, social and territorial cohesion, agriculture and rural, 
fisheries and maritime, prosperity and security for the period 2028-2034 and amending 
Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (2). The proposal 

1 

2 

Regulation  (EU)  2024/1263  of  the  European  Parliament  and  of  the  Council  of  29 April 2024  on  the 
effective  coordination  of  economic  policies  and  on  multilateral  budgetary  surveillance  and  repealing 
Council  Regulation 
ELI: 
http://data.europa.eu/eli/reg/2024/1263/oj  
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Fund  for  economic,  social  and  territorial  cohesion,  agriculture  and  rural,  fisheries  and  maritime, 
prosperity  and  security  for  the  period  2028-2034  and  amending  Regulation  (EU)  2023/955  and 

30 April 2024, 

(EC)  No 

2024/1263, 

1466/97 

(OJ 

L, 

EN 

1 

  EN 

 
 
(3) 

(4) 

(5) 

(6) 

aims to increase the effectiveness of Union funding by reducing the fragmentation of 
the  financial  architecture  and  to  support  Member  States  in  the  coordination  of  their 
economic policy in line with Article 175 TFEU.  

On  25 November 2025,  the  Commission  adopted  an  opinion  on  the  2026  draft 
budgetary  plan  of  Portugal.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011, the Commission adopted the 2026 Alert Mechanism Report, in which did 
not identify Portugal as one of the Member States for which an in-depth review would 
be  needed.  The  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation  on  the  economic  policy  of  the  euro  area,  a  recommendation  for  a 
Council recommendation on human capital in the European Union, and a proposal for 
the  2026  Joint  Employment  Report,  which  analyses  the  implementation  of  the 
Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights. 
The Council adopted the Recommendation on the economic policy of the euro area (3) 
on  21 April 2026,  and  the  Joint  Employment  Report,  and  the  Recommendation  on 
human capital on 9 March 2026.  

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic  framework  that  aims  to  boost  the  Union’s  global  competitiveness  over  the 
next  five  years.  It  identifies  the  three  transformational  imperatives  of  innovation, 
decarbonisation  and  competitiveness,  and  security  as  critical  pillars  for  sustainable 
economic  growth.  The  European  Semester  is  aligned  with  the  Competitiveness 
Compass,  ensuring  that  Member  States’  economic  policies  are  consistent  with  the 
Commission’s  strategic  objectives,  creating  a  unified  approach 
to  economic 
governance that fosters sustainable growth, innovation and resilience across the Union. 

In  2026,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  final  stage  of  Recovery  and  Resilience  Facility  (RRF) 
implementation (4). Recovery and resilience plans (RRPs), along with cohesion policy 
funding, have been essential for delivering on the policy priorities under the European 
Semester, as the plans were required to effectively address all or a significant subset of 
challenges identified in the relevant country-specific recommendations issued in recent 
cycles, and programmes funded by the European cohesion policy were required to take 
country-specific recommendations into account. As the RRF approaches the end of its 
lifetime, it remains essential to sustain the reforms supported and implemented under 
the RRF, in  particular those  that  contribute to  addressing challenges identified in  the 
country-specific recommendations. 

in 

addressing 

On  3 June 2026,  the  Commission  published  the  2026  country  report  for  Portugal.  It 
assessed  Portugal’s  progress 
country-specific 
recommendations  and  took  stock  of  Portugal’s  implementation  of  the  RRP.  On  the 
basis  of  that  analysis,  the  country  report  identified  the  most  pressing  challenges 
Portugal is facing. It also assessed Portugal’s progress in implementing the European 
Pillar  of  Social  Rights  and  in  achieving  the  Union  headline  targets  on  employment, 
skills  and  poverty  reduction,  as  well  as  progress  in  achieving  the  United  Nations 
Sustainable Development Goals.  

relevant 

the 

3 
4 

Regulation (EU, Euratom) 2024/2509 - COM(2025) 565 final. The proposed Regulation is currently the 
subject of negotiations with the co-legislators.   
OJ C, C/2026/2434, 28.4.2026, ELI: http://data.europa.eu/eli/C/2026/2434/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj).  

the  Recovery  and  Resilience  Facility 

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(7) 

(8) 

(9) 

On  21 January 2025,  the  Council,  upon  the  assessment  and  recommendation  of  the 
Commission, adopted a Recommendation endorsing the national medium-term fiscal-
structural  plan  of  Portugal  (5).  The  plan  covers  the  period  from  2025  until  2028  and 
presents  a  fiscal  adjustment  spread  over  four  years.  The  Council  recommended  the 
following  maximum  growth  rates  of  net  expenditure:  5.0%  in  2025,  5.1%  in  2026, 
1.2%  in  2027  and  3.3%  in  2028,  which  correspond  to  the  maximum  cumulative 
growth rates calculated by reference to the base year of 2023 of 17.4% in 2025, 23.4% 
in 2026, 24.8% in 2027 and 28.9% in 2028. 

from 

recommendation 

Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  has  invited  Member 
States  to  request  the  activation  of  the  national  escape  clause  of  the  Stability  and 
Growth Pact in a coordinated manner to support the EU efforts to achieve a rapid and 
significant  increase  in  defence  spending  (6)  and  this  proposal  was  welcomed  by  the 
European Council of 6 March 2025. Following the request of Portugal, on 8 July 2025 
the  Council,  upon  a 
the  Commission,  adopted  a 
Recommendation  allowing  Portugal  to  deviate  from  the  recommended  maximum 
growth  rates  of  net  expenditure7.  The  period  when  the  national  escape  clause  is 
activated  (2025-2028)  allows  Portugal  to  reprioritise  government  expenditure  or 
increase  government  revenue  so  that  lastingly  higher  defence  expenditure  would  not 
endanger fiscal sustainability in the medium term.  
On  30 April 2026,  Portugal  submitted  its  2026  Annual  Progress  Report  (8)  on 
adherence  to  the  recommended  maximum  growth  rates  of  net  expenditure,  and  the 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified  in  the  European  Semester  country-specific  recommendations.  The  Annual 
Progress  Report  also  reflects  Portugal’s  biannual  reporting  on  the  progress  made  in 
implementing  its  recovery  and  resilience  plan  in  accordance  with  Article  27  of 
Regulation (EU) 2021/241.  

(10)  Real  GDP  growth  in  2025  was  1.9%  and  HICP  inflation  stood  at  2.2%.  The 
Commission  Spring  2026  Forecast  projects  real  GDP  to  grow  by  1.7%  in  2026  and 
1.8% in 2027, and HICP inflation to stand at 3.0% in 2026 and 2.3% in 2027. 
(11)  Based  on  data  provided  by  Eurostat  (9),  Portugal’s  general  government  surplus 
increased  from  0.6%  of  GDP  in  2024  to  0.7%  of  GDP  in  2025.  Based  on  policy 
measures  known  by  the  cut-off  date  of  the  forecast,  the  Commission  Spring  2026 
Forecast projects a deficit of 0.1% of GDP in 2026 and a deficit of 0.4% of GDP in 
2027.  The  decrease  in  2026  mainly  reflects  the  impact  of  government  support 
measures  taken  in  response  to  storms  that  hit  Portugal  in  January  and  February, 
combined with the impact of further balance-deteriorating fiscal policy measures. The 
change  of  the  deficit  in  2027  mainly  reflects  the  impact  of  additional  balance-

5 

6 

7 

8 

9 

Council  Recommendation  of  21 January 2025  endorsing  the  national  medium-term  fiscal-structural 
plan of Portugal (OJ C, C/2025/641, 21.01.2025, ELI: http://data.europa.eu/eli/C/2025/641/oj). 
Communication  from  the  Commission,  'Accommodating  increased  defence  expenditure  within  the 
Stability and Growth Pact’, Brussels, 19 March 2025, C(2025) 2000 final. 
Council Recommendation of 8 July 2025 allowing Portugal to deviate from the maximum growth rates 
of net expenditure as set by the Council under Regulation (EU) 2024/1263 (Activation of the national 
escape clause), (OJ C, C/2025/3972, 20.08.2025, ELI: https://eur-lex.europa.eu/eli/C/2025/3972/oj). 
The  2026  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en   
Eurostat-Euro Indicators, 22 April 2026. 

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deteriorating fiscal policy measures, including a new housing package and reduction in 
corporate income tax. 

(12)  Based  on  the  Commission’s  estimates,  the  fiscal  stance  (10),  which  includes  both 
nationally and EU financed expenditure, was broadly neutral in 2025. It is projected to 
be expansionary, by 1.6% of GDP, in 2026, and contractionary, by 1.3% of  GDP, in 
2027. 

(13)  Based on data provided by Eurostat (11), Portugal’s general government debt decreased 
from  93.5%  of  GDP  at  the  end  of  2024  to  89.7%  of  GDP  at  the  end  of  2025.  The 
decrease in the debt ratio in 2025 mainly reflects a primary surplus and a favourable 
interest-growth differential. Based on policy measures known at the cut-off date of the 
forecast,  the  Commission  Spring  2026  Forecast  projects  the  debt-to-GDP  ratio  to 
decrease to 87.6% by the end of 2026 and to further decrease to 86.0% by the end of 
2027. The decrease in 2026 and 2027 mainly reflects the expected persistent primary 
surplus and favourable interest-growth differential. 

(14)  Based on Eurostat data (12), total general government defence expenditure in Portugal 
amounted  to  0.8%  of  GDP  in  2025.  According  to  the  Commission  Spring  2026 
Forecast, it is projected at the same level in 2026. This corresponds to an increase of 
0.0 percentage points of GDP compared to the reference year 2021. 

(15)  The  Union  continues  to  face  risks  of  energy  supply  disruptions  and  elevated  price 
volatility,  exacerbated  by  geopolitical  tensions  which  affect  global  oil  and  gas 
markets.  Experience  from  the  2022–2023  energy  crisis  has  shown  that  broad  and 
untargeted  measures  entail  large  fiscal  costs  and  are  socially  and  economically 
inefficient.  Since  the  outbreak  of  the  war  in  the  Middle  East  in  February  2026, 
Portugal  adopted fiscal  policy measures to  mitigate the impact  of high  energy prices 
on households and firms13. These include an untargeted reduction in excise duties on 
diesel  and  petrol  without  a  specified  expiry  date,  further  targeted  support  for  the 
transport, agriculture and fishery sectors as well as targeted transfers to  social sector 
entities,  taxi  companies  and  firefighting  associations.  The  targeted  support  measures 
are set to expire by 30 June 2026. According to the Commission Spring 2026 Forecast, 
the fiscal cost of these measures is projected to amount to 0.1% of GDP in 2026, also 
if all these measures were to be extended until end-2026. 

(16)  Based on the Commission’s calculations, net expenditure in Portugal grew by 5.5% in 
2025  and  18.7%  cumulatively  over  2024  and  2025.  The  net  expenditure  growth  in 
2025 is above the recommended maximum growth rate, corresponding to a deviation 
of  0.2%  of  GDP  in  annual  terms.  When  considering  2024  and  2025  together,  the 
cumulative growth rate of net expenditure is also above the recommended maximum 
growth rate, corresponding to a deviation of 0.4% of GDP in cumulative terms. Taking 
into  account  the  flexibility  for  higher  defence  spending  provided  for  by  the  national 

10 

11 

12 
13 

The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure net of discretionary revenue measures and including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 

Eurostat-Euro Indicators, 22 May 2026. 

Eurostat, government expenditure by classification of functions of government (COFOG). 
This reflects the situation at the cut-off date of the Commission’s Spring 2026 Forecast (4 May 2026). 

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escape  clause,  considering  2024  and  2025  together,  the  cumulative  deviation  of  net 
expenditure  remains  at  0.4%  of  GDP.  At  the  same  time,  as  noted,  the  budgetary 
position for 2025 was in surplus. 

(17)  Based  on  the  Commission’s  calculations,  net  expenditure  in  Portugal  is  projected  to 
grow  by  5.6%  in  2026,  and  25.2%  cumulatively  over  2024,  2025  and  2026.  The 
projected  net  expenditure  growth  in  2026  is  above  the  recommended  maximum 
growth  rate,  corresponding  to  a  deviation  of  0.2%  of  GDP  in  annual  terms.  When 
considering 2024, 2025 and 2026 together, the projected cumulative growth rate of net 
expenditure is also above the recommended maximum growth rate, corresponding to a 
deviation of 0.6% of GDP in cumulative terms. Taking into account the flexibility for 
higher defence spending provided for by the national escape clause, considering 2024, 
2025 and 2026 together, the projected cumulative deviation of net expenditure remains 
at  0.6%  of  GDP.  At  the  same  time,  as  noted,  the  budgetary  position  for  2026  is 
projected to be close to balance. 

(18)  Population  ageing  alongside  a  shrinking  working-age  population  puts 

the 
sustainability  of  Portugal's  pay-as-you-go  pension  system  under  pressure  in  the 
medium term. Public pension expenditure is projected to rise further over the next two 
decades, from 12.8% in 2025 to 15.1% in 2045 (14) Portugal is projected to have the 
third highest pension expenditure-to-GDP ratio of all Member States in 2045, with the 
projected  public  pension  system  expenditure  peaking  in  2046.  In  Portugal,  the 
statutory  retirement  age  is  linked  to  life  expectancy,  with  a  view  to  improving  the 
sustainability  of  the  pension  system.  Portugal  also  established  a  working  group  with 
the objectives to define strategies and assess proposals to ensure the sustainability of 
the  pension  system,  including  a  reassessment  of  the  early  retirement  scheme  and  a 
study  on  partial  retirement mechanisms.  However,  the  working  group  has  yet  to 
present  its  report  including  concrete  policy  proposals,  and  Portugal  has  not  taken 
concrete  measures  that  could  help  to  alleviate  the  pressure  on  the  country’s  public 
pension 
pension 
schemes remain underdeveloped and cover only a fraction of the workforce. This also 
undermines  the  potential  for  Portugal  to  mobilise  long-term  savings  for  productive 
investments.   

supplementary 

Portugal’s 

addition, 

system. 

In 

(19)  Tax  expenditures  are  widespread  in  the  Portuguese  tax  system,  with  close  to  800 
different tax expenditures over several different legal texts. Tax expenditures can be an 
effective  tool  to  achieve  specific  policy  objectives.  Nonetheless,  they  also  result  in 
foregone  revenue,  contribute  to  the  tax  system's  complexity  and  could  have 
implications for income inequality. In the context of the Recovery and Resilience Plan, 
Portugal  has taken an initial step in  tackling its large number of tax  expenditures by 
setting  up  a new  permanent  tax policy unit (known as U-TAX) that  aims  to  monitor 
and  evaluate  tax  expenditures.  However,  following  the  publication  of  U-TAXs 
assessment report,  effective action to  streamline  tax expenditure  remains  limited.   In 
2024, value-added tax expenditure alone represented 4.3% of GDP. The extensive use 
of reduced and intermediate VAT rates for hospitality services (hotel accommodations, 
restaurants,  and  catering  services)  may  disproportionately  benefit  higher-income 
households.  Numerous  incentives  and  exemptions  also  add  significantly  to  the 
complexity  of  the  corporate  income  tax  framework.    Portugal  could  improve  the 

14 

European Commission, 2024 Ageing Report: Economic and Budgetary Projections for the EU Member 
States (2022−2070), Institutional Paper 279, April 2024 

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effectiveness  of  its  tax  system  by  streamlining  tax  expenditures,  including  those 
related  to  reduced  and  intermediate  value  added  tax  rates  and  within  the  corporate 
income tax. In addition, Portugal's outstanding tax arrears relative to GDP remain one 
of the highest in the EU, despite a steady reduction since 2021.  

(20)  The systematic, meaningful and timely involvement of local and regional authorities, 
social partners, civil society and other relevant stakeholders remains essential in order 
to  ensure broad ownership  for the successful  implementation  of the  Union’s funding 
instruments, as well as in the context of the European Semester. 

(21)  The implementation  of cohesion policy programmes, which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF), 
the  European  Social  Fund  Plus  (ESF+)  and  the  Cohesion  Fund  (CF)  in  Portugal, 
remains  below  EU  average,  both  in  terms  of  project  selection  and  payments.  It  is 
important to step up and accelerate efforts to ensure the swift delivery of investments, 
while maximising their impact on the ground. Portugal is already taking action under 
its  cohesion  policy  programmes  to  boost  competitiveness  and  growth.  However, 
Portugal  continues  to  face  challenges  in  implementation,  including  those  relating  to 
delays  in  public  procurement  procedures  due  to  appeals,  limited  technical  and 
administrative  capacity,  delays  in  contracting  support  between  the  managing 
authorities and the inter-municipal communities responsible for territorial instruments, 
lengthy industrial licensing and permitting procedures, a lack of predictable planning, 
and insufficient mature project pipelines. At the same time, Portugal needs accelerate 
the  implementation  of  the  JTF  as  resources  are  due  for  disbursement  by  the  end  of 
2026.  It  is  essential  to  ensure  that  the  new  investments  identified  by  Portugal  in  its 
mid-term  review  of  the  cohesion  policy  funds,  notably  those  linked  to  the  five 
priorities identified in the Mid-Term Review Regulation (15), are deployed rapidly and 
effectively. 

(22)  Portugal  faces  several  challenges  related  to  simplification,  business  environment, 
research  and  innovation,  access  to  finance  and  growth  financing,  quality  of  law 
making,  transport,  renewable  energy,  energy  infrastructure  and  networks,  energy 
efficiency, environmental policy, resource management, climate adaptation, healthcare 
and long-term care, skills and education, and housing. 

to  scale-up, 

(23)  Despite  the  progress  made  over  recent  years,  administrative  and  regulatory  burdens 
remain  a  major  constraint  to  the  operation  of  businesses  in  Portugal.  These  barriers 
weigh  on  the  attractiveness  of  the  Portuguese  markets,  reduce  competition  and 
undermine  Portuguese  firms'  capacity 
their 
productivity.  In  particular,  firms  continue  to  report  long  industrial  licensing  and 
permitting  procedures,  which  they  consider  to  be  a  major  barrier  to  investment. 
Despite  some  progress  made  in  shortening  and  streamlining  these  processes,  local 
authorities  face  difficulties  in  implementing  the  new  procedures,  and  practices  can 
differ  significantly  across  regions  and  municipalities.  Portugal  could  streamline  and 
improve  the  effectiveness  of  its  regulation  by  making  wider  use  of  ex-post  policy 
evaluations  as  well  as  strengthening  stakeholders'  involvement  and  increasing 
transparency in the preparation of public policies. Late payments remain widespread, 
especially in the Azores, and the healthcare sector.  

innovate  and  boost 

15 

Regulation  (EU)  2025/1914  of  the  European  Parliament  and  of  the  Council  of  18 September 2025 
amending  Regulations  (EU)  2021/1058  and  (EU)  2021/1056  as  regards  specific  measures  to  address 
strategic challenges in the context of the mid-term review. 

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(24)  Portuguese  firms  rely  predominantly  on  bank  loans  and  internal  funding.  Other 
sources  of  financing,  such  as  venture  and  equity  capital,  have  been  increasingly 
adopted over the last few years but remain markedly less common than in the EU on 
average  and  Portuguese  capital  markets  remain  underdeveloped.  The  Portuguese 
authorities launched and strengthened several initiatives, such as the capitalisation and 
resilience  fund  managed  by  Banco  Português  de  Fomento,  programmes  supporting 
start-ups  or  targeting  specific  sectors,  as  well  as  the  recent  review  of  the  capital 
markets  code.  However,  further  progress  is  needed  for  Portugal  to  catch  up  with 
European peers and attract more private equity investors and investments, including by 
enhancing  the  role  and  capacity  of  institutional  investors  and  by  developing 
supplementary pension schemes, which could provide a stable and significant source 
of  long-term  capital  for  the  venture  capital  and  private  equity  segments.  This  could 
support  innovation,  increase  local  firms'  capacity  to  scale  up  and  expand  their 
operation,  improve  managerial  practices  and  boost  productivity.  Financial  literacy  in 
Portugal is weak and, in the 2023 Eurobarometer financial literacy survey, only 16% 
of  Portuguese  received  a  'high'  score,  the  second  worst  result  in  the  EU.  Portugal 
implemented  several  measures  to  address  these  gaps,  among  which  the  inclusion  of 
financial literacy in  school  curricula. However, further efforts  in  improving  financial 
literacy  could  enable  a  more  effective  allocation  of  savings  and  help  improve  firms' 
understanding of the specific benefits and risks of each available financing instrument. 

(25)  The  justice  system  is  becoming  more  efficient  but  continues  to  face  challenges  with 
lengthy  proceedings  and  a  sizeable  backlog  of  cases,  in  particular  in  administrative 
and, to a lesser extent, tax courts. Firms report that inefficiencies in the judicial system 
present  one  of  the  main  barriers  to  their  operations  (16).  It  will  be  important  for 
Portugal  to  continue  making  progress  in  reducing  the  backlog  of  pending  cases,  as 
well as their duration, in both first-instance and second-instance courts, and to ensure 
the availability of adequate resources for the justice system. 

(26) 

Investment in research and development has picked up over recent years but remains 
insufficient  for  the  Portuguese  national  research  and  innovation  system  to  catch  up 
with the EU average. The share of spending on research and development in relation to 
GDP increased to 1.7% in 2024, supported by an increase in private spending, while 
public  research  and  development  intensity  remained  stable  at  0.6%.  Portuguese 
authorities  have  implemented  a  wide  range  of  programmes  to  support  research  and 
innovation, many of which are expected to be completed in 2026. While long-lasting 
benefits  are  expected  from  these  programmes,  adequate  incentives  to  research, 
development  and innovation would be necessary beyond their timeframe. Evaluating 
policies, targeting sectors displaying the highest potential for growth and value added, 
and taking regional specificities into account can support this. In this respect, policies 
should  promote  effective  technology  and  knowledge  transfers  between  firms  and 
research centres, and enhance Portuguese firms’ capacity to research and innovate. 

(27)  Portugal  remains  highly  dependent  on  imported  fossil  fuels.  This  poses  important 
challenges  for  energy  security  and  leaves  Portugal  vulnerable  to  price  shocks. 
Transport  is  the  sector  with  the  largest  contribution  to  Portugal's  greenhouse  gas 
emissions,  and  it  is  highly  dependent  on  imported  oil,  which  accounted  for  93%  of 
transport's  total  final  energy  consumption.  Portugal  records  sizeable  fossil-fuel 
subsidies without a planned phase-out before 2030. In particular, fossil-fuel subsidies 

16 

 Studies on Business Statistics, Context Costs of Companies (IaCC), National statistical institute. 

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that  do  not  address  energy  poverty  in  a  targeted  way  nor  respond  to  energy  security 
concerns, hinder electrification and are not crucial for industrial competitiveness could 
be  considered  a  phase-out  priority.  Portugal  did  not  take  actions  to  phase-out  fossil-
fuel subsidies such as tax reductions and exemptions for diesel for freight companies 
and public transport, which perpetuate reliance on fossil fuels and disincentivise more 
sustainable  transport  solutions.  Portugal  is  making  progress  in  promoting  electric 
mobility  and  decarbonising  the  vehicle  fleet.  However,  support  measures  for  private 
zero-emission  vehicles, 
transport  vehicles,  are 
insufficiently  targeted.  Progress  on  further  developing  the  railway  network  remains 
limited.  Although  public  transport  is  generally  affordable,  the  availability  in 
metropolitan  areas  is  insufficient  and  the  network  out  of  urban  areas  remains 
underdeveloped, with  limited  access  in  rural  areas.  Inter-regional connectivity would 
require substantial strengthening across all modes of public transport, in particular rail. 
This  could  play  an  important  role  also  in  reducing  the  pressure  on  house  prices  in 
urban centres and in improving attractiveness of other territories. 

including  commercial 

road 

(28)  Portugal  has  one  of  the  most  decarbonised  power  systems  in  the  EU.  However, 
complex, lengthy and insufficiently digitalised permitting procedures continue to slow, 
notably,  the  deployment  of  new,  grid-scale  renewable  capacity.  The  development  of 
citizen-led  renewable  energy  communities  also  remains  very  limited.  The  significant 
share  of  renewables  contributes  to  ensuring  affordable  wholesale  electricity  prices 
amidst the ongoing conflict in the Middle East. However, limited non-fossil flexibility 
and scarce de-risking instruments leave Portugal exposed to electricity price peaks. In 
addition,  the  uptake  of  power  purchase  agreements  remains  limited.  Incentives  to 
further  develop  long-term  contracts  would  help  make  the  market  more  stable  by 
securing long-term revenues for developers. Grid capacity limitations are increasingly 
affecting  the  connection  of  new  renewable  projects,  with  a  growing  backlog  of 
projects  awaiting  connection  and  considerable  amounts  of  allocated  capacity  not  yet 
operational. While some measures have been taken to increase existing grid capacity, 
Portugal  should  increase  the  transparency  on  available  distribution  grid  capacity  to 
make  it  easier  for  developers  to  plan  and  invest  in  new  projects,  alongside  with 
measures  to  improve  grid  efficiency  such  as  promoting  hybrid  projects  and  to  deter 
speculative  applications.  Addressing  permitting  procedures  bottlenecks  and  further 
investing 
the  cross-border 
interconnection  with  Spain,  promoting  storage,  demand-side  response  and  other 
flexibility  solutions,  and  further  digitalising  the  grid  will  enhance  the  resilience, 
stability and security of the network and support electrification efforts. 

in  electricity  grids, 

the  completion  of 

including 

(29)  A  large  share  of  the  Portuguese  population  are  exposed  to  energy  poverty.  Despite 
considerable  funding,  including  from  the  EU  budget,  energy  efficiency  schemes  in 
Portugal  continue  to  face  implementation  delays  due  to  complex  and  unstable 
programme  designs.  Portugal  has  recently  introduced  a  scheme  to  mobilise  private 
financing,  although its  uptake remains unclear.  To reduce the high reliance on fossil 
fuels in buildings and curb energy consumption, Portugal should accelerate efforts on 
energy  efficiency  by  improving  scheme  design  and  forward  planning  of  the  funding 
calls, strengthening incentives for  deep renovations,  promoting financing schemes to 
attract  private  investment,  removing  regulatory  bottlenecks,  particularly  for  multi-
apartment  buildings and  public buildings, and better targeting grant-based  support to 
vulnerable households experiencing energy poverty.   

(30)  While Portugal is not among the highest emitters in the EU, greenhouse gas emissions 
from  industry  are  not  substantially  decreasing.  Energy-intensive  industries,  such  as 

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paper, non-metallic minerals and the refining sector still account for more than half of 
the total industrial energy demand. Complex regulatory frameworks with overlapping 
governance levels, lengthy permitting processes, lack of predictability, and the lack of 
a  regulatory  framework  for  carbon  capture  and  storage  (CCUS)  and  related 
infrastructure  all  represent  barriers  to  the  decarbonisation  of  hard-to-abate  sectors. 
Given  its  strong  deployment  of  renewable  energy  and  other  net-zero  technologies, 
alongside  a  highly  decarbonised  electricity  system,  Portugal  is  well  positioned  to 
strengthen  its  position  in  the  value  chain  for  the  manufacturing  of  net-zero 
technologies and sustainable and circular materials. Portugal could benefit from better 
targeting  support  to  low  carbon  industrial  processes  and  the  manufacturing  and 
deployment  of  net-zero  technologies,  supporting  the  scale  up  of  innovations,  and 
attracting strategic low-carbon sectors such as the battery, biomethane and renewable 
hydrogen sector.  

(31)  Portugal  significantly  underperforms  on  circular  economy  and  waste  management 
indicators,  both  compared  to  EU  targets  and  the  EU  average.  Portugal  continues  to 
rely heavily on landfilling of municipal waste, with close to two-thirds of landfill sites 
nearing capacity; and it is at risk of missing the 2035 EU target of reducing landfilling 
to  a maximum of 10%. Some progress  has been made through national  and regional 
initiatives,  including  the  adoption  of  a  new  Circular  Economy  Action  Plan  in  2026, 
although  their  impact  remains  to  be  demonstrated.  Portugal  should  continue 
implementing the current strategic framework and could benefit from enacting further 
reforms,  including  strengthening  the  use  of  economic  instruments,  notably  the 
introduction of a mandatory pay-as-you throw model for household waste. The sector 
requires significant investment, notably in infrastructure for selective waste collection 
and  recycling  and  in  the  development  or  upgrading  of  waste  treatment  facilities  in 
order to reduce landfill and incinerator waste; whereas mobilising private support will 
be  critical  to  improve  waste  management  and  advance  the  transition  to  a  circular 
economy.   

(32)  Portugal is facing water scarcity, especially in the southern regions, driven in part by 
inadequate  infrastructure,  climate  change  and  high  demand.  In  addition,  significant 
disparities in water prices across municipalities persist, giving rise to differential and 
counterproductive  incentives  for  consumption.  Portugal  has  been  implementing  a 
national water strategy, but important challenges remain. Streamlining governance in 
the  water  sector  would  support  more  effective  coordination  across  national,  regional 
and local levels. Demand-side measures, including a water pricing reform, would help 
improve water management and ensure capital for delivery of infrastructure upgrades, 
while incentivising conservation and water efficiency and reuse. Further investment is 
needed  in  wastewater  collection  and  treatment,  reducing  network  leakages,  and 
strengthening  monitoring  of  water  quantity  and  quality,  including  groundwater 
abstraction.  Nature-based  solutions  would  also  contribute  to  rehabilitating  water 
bodies  and  to  restoring  the  natural  retention  capacity  of  landscapes,  wetlands  and 
rivers, including floodplains.  

(33)  Portugal  is  particularly  vulnerable  to  climate  change  and  related  extreme  weather 
events,  such  as  intense  droughts,  floods,  wildfires  and  heatwaves.  The  increasing 
frequency and severity of these events necessitate costly reconstruction work and the 
rehabilitation of affected infrastructure, including critical infrastructure. Many sectors 
are impacted, especially the power sector, agriculture, water supply, forestry, fisheries 
and  aquaculture.  In  addition,  current  levels  of  coastal  protection  are  insufficient  to 
prevent  increased  economic  damages  from  coastal  flooding  and  erosion.  Therefore, 

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Portugal  would  benefit  from  adequate  and  predictable  financing  to  climate-proof 
critical infrastructure, including electricity grids, railways and water supply. In view of 
the  intensive  wildfires,  forest  policy  reforms  should  be  accelerated,  and  Portugal 
should  continue  to  focus  on  developing  viable  economic  value  chains  for  forest 
biomass,  taking  further  advantage  of  the  potential  of  the  bioeconomy  to  increase 
competitiveness  and  sustainability.  It  would  be  beneficial  for  Portugal  to  take  a 
structured  approach  to  disaster-risk  financing  and  to  promote  increased  private 
insurance coverage for damages related to natural catastrophes, as currently Portugal 
has one of the lowest shares of insured economic losses in the EU.  

(34)  Portugal’s health system performs comparatively well in terms of health outcomes, but 
challenges  remain  in  ensuring  equal  access  to  quality  healthcare,  particularly  due  to 
persistent staff shortages that undermine the efficiency of the National Health Service 
(NHS).  Portugal  has  introduced  important  reforms  and  invested  in  healthcare 
infrastructure  in  recent  years,  including  through  its  Recovery  and  Resilience  Plan. 
However,  significant  challenges  in  filling  vacancies  and  retaining  healthcare 
professionals in the NHS contribute to persistent long waiting times and uneven access 
to  care.  Lower-income  and  vulnerable  groups  are  ultimately  more  affected  by  the 
shortcomings of the system, as they often cannot afford turning into private options to 
meet  their healthcare needs. Regional disparities in  access  to  healthcare  also  remain, 
with stronger constraints in both very populated areas (where demand for the services 
is  higher)  and  remote  places  facing  demographic  decline  (where  incentives  are  not 
sufficient to attract the needed workforce). Limited access and long waiting times have 
also  been  contributing  to  the  high  proportion  of  out-of-pocket  payments  to  meet 
healthcare needs. Despite some measures put in place to address the staff shortages – 
and  while  ensuring  the  sustainability  of  the  NHS  –  further  improving  working 
conditions  of  healthcare  professionals  could  help  increasing  the  attractiveness  of  the 
careers in the NHS and improving the efficiency of the system. 

(35)  Portugal  is  among  the  EU  Member  States  facing  a  more  rapidly  ageing  population, 
which  implies  significant  and  growing  long-term  care  needs.  However,  public 
investment in long-term care is well below EU average and planning of long-term care 
provision remains uncoordinated. The provision of long-term care is skewed towards 
residential care, while home-based and community-based solutions could contribute to 
improving  the  ability  of  people  to  live  independently.  There  are  also  regional 
disparities in the access to quality long-term care across the country, with rural areas 
particularly underserved. The actions taken by Portugal so far (such as improvements 
in the status of informal carers and a pilot project on home support services) have had 
limited effectiveness or  suffer from limited foreseen coverage. Supporting affordable 
options based on needs, including by strengthening home and community-based care, 
improving  planning and closing the regional gaps could  contribute to  ensuring equal 
access to quality long-term care. 

(36) 

In light of the crucial role of human capital in enhancing the Union’s competitiveness 
and  strategic  autonomy,  in  2026  the  Council  recommended  that  Member  States take 
action to  urgently  address  human  capital-related  structural  challenges  in  the  areas  of 
skills  and  education,  which  hamper  competitiveness.  The  2026  country-specific 
recommendations  addressed  to  Portugal  can contribute  to  the  implementation  of  the 
Council Recommendation on human capital in the Union.  

(37) 

In  spite  of  positive  labour  market  developments  in  recent  years,  Portugal  faces 
persistent  skills  mismatches.  These  are  fuelled  by  a  misalignment  of  education  and 
training with labour market needs, as well as by insufficient results in upskilling and 

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reskilling  the  available  workforce,  despite  measures  taken  in  the  right  direction,  like 
trainings in digital competencies. As a result, there are labour shortages in key sectors 
(such  as  ICT,  construction,  healthcare  and  justice)  and  firms  report  difficulties  in 
finding available workers with the right set of skills. More effective and well targeted 
active  labour  market  policies,  in  particular  for  youth,  would  also  help  reduce  skills 
mismatches  and  ease  labour  market  access  for  this  group.  In  parallel,  Portugal’s 
productivity  and  competitiveness  remain  constrained  by  the  low  skills  levels  of  the 
adult population. Participation in adult learning is still relatively low, in particular  in 
the outermost regions. The use of skills intelligence tools could reduce mismatches by 
better aligning tertiary education, VET and adult learning offer with the skills needed 
in the labour market. In addition, raising outcomes and participation in adult learning 
could  help  boost  skills  levels  among  the  segments  of  the  population  where  they  are 
lower,  as  well  as  providing  the  available  workforce  with  the  skills  required  by  an 
evolving economy. 

(38)  Portugal  has  made  significant  progress  in  recent  decades  in  raising  educational 
attainment  levels.  In  addition,  the  share  of  early  leavers  from  education  and  training 
has  steadily  declined  and  is  in  line  with  the  EU  2030  target,  while  participation  in 
early  childhood  education  and  care  remains  well  above  the  EU  average.  However, 
there  is  a  worrying  trend  in  the  acquisition  of  basic  skills  in  schools.  Between  2018 
and  2022,  the  share  of  low-performing  students  in  mathematics,  reading  and  science 
increased,  while  the  share  of  top  performers  declined.  Furthermore,  educational 
outcomes 
from  disadvantaged  socio-economic 
backgrounds, who are more likely to underperform (for example,  47% of students in 
the  lowest  socio-economic  quarter  underachieve  in  mathematics,  compared  to  30% 
overall).  Students  of  a  foreign  background  also  have  lower  education  outcomes  on 
average, together with  higher retention and dropout  rates,  at  a time when their share 
has increased to around 14% of the student population in primary and lower-secondary 
education.  In  parallel,  teacher  shortages  persist  in  the  education  system  and  risk 
affecting further the quality and inclusiveness of education. Addressing these issues is 
key to supporting skills development, equal opportunities, and social cohesion. 

remain  uneven 

for  students 

(39)  Portugal  recorded  one  of  the  highest  cumulative  increases  in  nominal  house  prices 
over  the  past  ten  years  in  the  EU,  more  than  doubling  since  2015.  Affordability 
pressures are much higher in  coastal  and urban areas. Structural imbalances between 
supply and demand persist. Portugal displays a comparatively high share of dwellings 
not  used  as  primary  residences,  with  a  significant  number  of  vacant  and  derelict 
properties.  Shifting  from  transaction  taxes  toward  recurrent  taxation,  including 
through an update of tax property values, could provide incentives for homeowners to 
put  underused  properties  on  the  market  and  incentivise  residential  mobility. 
Investment in social housing has significantly increased over the past years, supported 
in  part by  Union funding. However,  current  figures  of affordable  and social housing 
are still below the EU average. While public investment remains central, participation 
from  the  private  sector  is  essential  to  increase  construction  and  meet  demand, 
including  solutions  provided  by  the  third  sector  such  as  cooperative  housing. 
Increasing  the  supply  of  affordable  and  social  housing  requires  taking  into  account 
territorial  dimensions  and  principles  of  inclusion  and  non-segregation.  Along  with  a 
gradual  increase  of  supply,  housing  allowances  can  provide  temporary  relief  to 
vulnerable  households,  although  existing  schemes  would  benefit  from  improved 
targeting.  At  the  same  time,  homelessness  and  other  forms  of  housing  exclusion 
continue  to  grow,  with  regional  differences  in  how  effectively  they  are  being 
addressed. Portugal makes insufficient use of regular ex-post evaluations and mapping 

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(40) 

of  the  needs  in  its  housing  policy.  Through  the  Technical  Support  Instrument  (TSI), 
Portugal  will  receive  support  to  establish  a  national  model  for  housing  data 
governance  and  management,  which  should  help  strengthen  the  evaluation  and 
monitoring  of  current  and  future  housing  policies  if  fully  implemented.  The  current 
coordination between central and local authorities, as well as the coordination across 
housing,  urban,  spatial  and  transport  planning,  remains  fragmented.  Moreover, 
investment and financing mechanisms are mainly ad hoc.  

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2026  the  Council  recommended  that  the  euro-area  Member  States  take 
action, including through their RRPs, to implement the 2026 Recommendation on the 
economic  policy  of  the  euro  area.  For  Portugal,  the  recommendation  (1)  helps 
implement  the  first,  the  second  and  the  third  recommendations  on  the  euro  area,  the 
recommendation  (2)  helps  implement  the  fourth  recommendation  on  the  euro  area, 
recommendation 
eleventh 
recommendations  on  the  euro  area,  recommendation  (4)  helps  implement  the  second 
and the seventh recommendations on the euro area, and the recommendations (5) and 
(6) help implement the fifth recommendation on the euro area. 

seventh,  ninth 

(3)  helps 

implement 

and 

the 

HEREBY RECOMMENDS that Portugal take action in 2026 and 2027 to:  

1. 

2. 

3. 

4. 

rates 

recommended  by 

the  maximum  growth 

While recognising a budgetary position in surplus or close to balance in Portugal, in 
view of the deviation recorded by 2025 and projected for 2026 by the Commission 
vis-à-vis  the  recommended  net  expenditure  ceiling,  ensure  that  net  expenditure 
respects 
the  Council  on 
21 January 2025, while making use of the flexibility under the national escape clause 
for  higher  defence  expenditure.  Reinforce  defence  spending  and  readiness  while 
ensuring  spending  efficiency  and  gradually  adapting  the  budget  to  sustain 
structurally higher defence spending. Ensure that any measures taken to mitigate the 
impact of the hike in energy prices are temporary, targeted at protecting vulnerable 
households or at addressing the needs of energy-intensive firms, preserve incentives 
for  energy  savings  while  ensuring  that  their  fiscal  cost  is  compatible  with  the 
commitments  under  the  EU  fiscal  framework.  Take  action  to  ensure  the  medium-
term fiscal sustainability of the pension system, and promote supplementary pension 
schemes.  Improve  the  effectiveness  of  the  tax  system,  particularly  by  streamlining 
tax expenditures. 

Ensure continuity of reforms and investments implemented under the Recovery and 
Resilience  Facility.  Accelerate  efforts  to  implement  cohesion  policy  programmes, 
building, where appropriate, on the reallocation to strategic priorities and flexibilities 
in the mid-term review of the cohesion policy framework.  

the 

improve 

implementation  of  regulatory 

Simplify  regulation, 
tools  and 
coordination across levels of the public administration. Reduce administrative burden 
on  businesses,  removing  barriers  to  industrial  licensing  and  other  obstacles  to  their 
capacity to scale up. Foster private investment into venture capital and private equity 
for  local  businesses  and  continue  improving  financial  literacy.  Further  increase  the 
efficiency  of  administrative  and  tax  courts,  to  decrease  the  length  of  proceedings. 
Sustain the focus of investment-related economic policy on research and innovation. 

Accelerate  the  decarbonisation  of  transport,  in  particular  by  phasing  out  fossil-fuel 
subsidies  and  strengthening  public  transport  network.  Foster  long-term  contracts, 
accelerate  investment  in  flexibility  solutions  and  provide  a  predictable  regulatory 

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framework.  Strengthen  the  capacity  of  the  electricity  transmission  and  distribution 
grid, including  in  cross-border  electricity interconnections, and improve  connection 
procedures.  Accelerate  energy  efficiency  renovations  by  removing  regulatory  and 
administrative bottlenecks and by targeting households experiencing energy poverty. 
Foster  the  decarbonisation  of  industry.  Increase  waste  management  capacity, 
prevention,  recycling  and  reuse.  Improve  water  management  and  streamline  water 
governance.  Improve  water  efficiency  and  develop  nature-based  solutions.  Address 
climate-related  risks  by  strengthening  sustainable  forest  and  land  management, 
accelerating  the  climate-proofing  of  critical  infrastructure  and  promoting  increased 
private insurance coverage against natural disaster-related damages. 

Ensure equal access to quality healthcare, particularly by addressing the shortages of 
healthcare  staff,  while  preserving  the  sustainability  of  the  National  Health  Service. 
Ensure  equal  access  to  quality  long-term  care,  including  by  addressing  regional 
disparities  and  strengthening  home  and  community-based  care  solutions.  Address 
skills mismatches and improve skills levels, including by promoting participation in 
adult learning and by making education, training and adult learning more relevant to 
the needs of the labour market. Promote better educational outcomes, particularly for 
disadvantaged students. 

Address housing affordability and availability, in particular by creating incentives to 
use the housing stock more efficiently, including through a re-calibration of the tax 
mix. Further expand the supply of housing, including affordable and social housing. 
Strengthen coordination and governance of housing policy, together with integrated 
urban, spatial and transport planning. 

5. 

6. 

Done at Brussels, 

For the Council 
The President 

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