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ECB keeps interest rates steady but signals possible cuts in 2025

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European Central Bank’s decision reflects caution regarding inflation trends but signals openness to reduce borrowing costs next year.

The European Central Bank (ECB) has decided to keep its benchmark interest rates unchanged, opting for a cautious stance in light of the eurozone’s economic outlook. Despite this decision, the institution left the door open for potential cuts in 2025, should inflation continue to converge sustainably toward the 2% target.

According to ECB President Christine Lagarde, the priority remains ensuring price stability. However, it was acknowledged that current economic conditions are weighing on consumption and investment, particularly in countries like Portugal, where households and businesses still face the burden of high financing costs.

Keeping rates steady means that, for now, housing and consumer loans will continue to carry high costs. Nevertheless, the prospect of future cuts brings optimism to investors and economic agents, who anticipate a gradual easing of financial pressures.

If reductions do materialize in 2025, Portugal could benefit from stronger domestic economic activity, with positive effects on business investment and the real estate market. Still, experts stress that the adjustment must be balanced to avoid undermining the recent progress made in fighting inflation.

Fitch upgrades Portugal’s rating to “A” due to fiscal strength

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The Fitch agency highlights consistent primary surpluses, debt reduction, and a debt profile centered on fixed rates as decisive factors for improving the country’s credit rating.

The financial rating agency Fitch recently announced the upgrade of Portugal’s credit rating, which rose from “A-” to “A.” This decision reflects growing confidence in the country’s ability to maintain a solid fiscal trajectory, even amid international economic uncertainty. The agency stressed that consistent management of public accounts and the gradual reduction of debt were key factors in the rating upgrade.

According to Fitch, the positive performance is largely due to the successive primary surpluses achieved by Portugal. These results demonstrate an ongoing effort to control public spending and responsibly manage state finances. In addition, the debt structure now shows a more robust profile, with extended maturities and a higher percentage of debt issued at fixed interest rates, reducing exposure to market fluctuations.

Another highlighted element was Portugal’s ability to face the challenges posed by low inflation and the economic slowdown in Europe. Although GDP growth may moderate in the coming years, Fitch believes that budgetary discipline and the commitment to financial stability will remain factors of resilience. The agency also noted that the country has benefited from effective fiscal containment policies and the sound implementation of European funds, such as the Recovery and Resilience Plan (RRP).

This rating upgrade is positive news for the Portuguese economy, as it improves risk perception among international investors. In practice, it may translate into lower financing costs for the state and national companies, strengthening the competitiveness of the economy. The rating increase also sends a signal of confidence to markets, showing that Portugal is on a sustainable path of public debt management and strengthening its external financial position.

PRR with Execution Below Expectations

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The Public Finance Council noted that, although Portugal eliminated its fiscal imbalance in 2023 with a surplus of 1.2% of GDP, the implementation of the Recovery and Resilience Plan (RRP) remains below expectations, with only 61.8% of the funds allocated.
Of the total, two-thirds were implemented only in 2023, reflecting a delayed increase in the allocation of resources, limiting the impact on public investment and economic growth.
This situation emphasizes the urgency of accelerating the implementation of the RRP to maximize planned investments and contribute to a sustainable economic recovery.

Public Debt Continues on a Reduction Path

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According to the Bank of Portugal’s Financial Stability Report (November 2024), the public debt ratio fell from 132.5% in 2014 to 97.9% in 2023, with the reduction continuing in the third quarter of 2024.
This positive development contributes to Portugal’s credibility in the markets, reflected in the improvement in debt return rates and the maintenance of its category A credit rating by four international agencies.
However, public debt remains high, and risks associated with external shocks or the economic cycle demand prudence and a commitment to consolidating a sustained reduction path.

Bank of Portugal Projections Point to Return to Deficit

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According to the Bank of Portugal’s June 2025 Economic Bulletin, after a surplus of 0.7% of GDP in 2024, the Portuguese economy is expected to record a budget deficit of 0.1% in 2025, with increases to 1.3% in 2026 and 0.9% in 2027.
The expansionary fiscal stance observed in 2024 is expected to persist in the following years, albeit with some reversal in 2027. The balance sheet points to a further deterioration in the structural primary balance, reflecting the impact of the announced measures and the adverse economic cycle.
This scenario reinforces the need for public spending restraint and clear strategies to ensure fiscal consolidation in the medium term.

CFP warns of future risks despite surplus in 2024

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The Public Finance Council (CFP) emphasizes that, despite a fiscal surplus of 0.7% of GDP in 2024, fiscal policy remained expansionary and countercyclical, which could jeopardize the sustainability of public finances in the future.
The positive balance was driven largely by the exceptional performance of the Pension Funds and the Regional and Local Administration.
However, the deterioration of the Central Administration’s balance, which recorded a deficit of 1.5% of GDP, and the sharp growth in personnel and social benefit spending indicate lasting costs that could put pressure on the budget. Public revenue, while robust, grew unevenly, particularly for ICMS (Tax on Goods and Services) and IRPJ (Corporate Income Tax), and the tax burden reached 35.6% of GDP.
The CFP warns that, in 2026, the country is expected to return to deficits—estimated at 1% of GDP—and public debt is unlikely to resume its downward trend, jeopardizing compliance with European fiscal targets.

Recovery of the Portuguese economy driven by private consumption

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Portugal recorded 0.6% quarter-on-quarter economic growth in the second quarter of 2025, reversing the 0.4% contraction of the previous quarter, according to the National Statistics Institute.
On an annual basis, GDP grew 1.9%, up from 1.7% in the previous quarter. This performance is mainly due to the recovery in private consumption, a key driver of economic activity.
Despite this boost, the Bank of Portugal revised its growth forecast for the full year downward, reducing it from 2.3% to 1.6%, due to tensions in international trade.
The government, however, maintains a more optimistic stance, maintaining its expectation at 2.1%.
This scenario suggests some resilience in the Portuguese economy, but also reinforces the need for policies that foster investment, diversify export markets, and encourage sustainable consumption.

SNS Registers a Hole of €465 Million Until May

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Official data reveal that the deficit of the National Health Service (SNS) almost doubled until May compared to the same period in 2024, reaching a hole of €465 million, reflecting a worsening of €312.4 million compared to the previous year. This result is mainly due to the increase in personnel costs (growth of 13.6%) and the pressure exerted by inflation on medical supplies.

The growth in spending on human resources, partly due to salary updates and partly due to extraordinary hiring in a post-pandemic context, is the main factor in the budgetary deterioration of the SUS. At the same time, operating costs have soared due to the rise in the prices of energy, services and hospital maintenance.

The situation is a cause for concern for healthcare professionals and hospital managers, who warn of the risk of compromising the quality and effectiveness of the services provided. Without additional containment measures, public funding may be insufficient to cover emerging needs, especially in critical specialties.

The government has already admitted to reviewing its forecasts for the public deficit and highlights the urgent need to promote reforms in the healthcare sector, including better financial planning, spending control and investment in digitalization and hospital management.

Treasury Issues Retail Bonds Linked to 6-Month Euribor

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The National Treasury announced the launch of new *Treasury’s Retail Verbrief Bonds* (OTRV), a return on debt issuances aimed at individual investors, with maturities in six years and a rate indexed to the 6-month Selic rate plus a premium of 0.25%. This offering represents an alternative to savings certificates, increasing competition in fixed-income instruments available to the public.

The initiative arose as part of a strategy to diversify sources of financing and attract small savers, at a time when the European Central Bank (ECB) is progressively reducing interest rates. The Institute of Financial Management and Public Debt (IGCP) will fulfill, by the end of May, approximately 47% of the annual issuance plan, which suggests continuity in the capture of national savings.

For investors, the proposal is attractive given the expectation that the Selic rate will remain above 2% for 6 months, offering a return adjusted to sovereign credit risk. Even so, caution is advised, since European money market conditions may evolve, affecting the cost of financing for the State.

This operation reveals changes in the affiliation of domestic investors, who now seem to prefer instruments with variable rates and shorter terms, in contrast to traditional savings accounts linked to the State.

BPI Profits Reach Record 588 Million in 2024

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BPI Profits Reach Record 588 Million in 2024

The Jornal Económico reports that BPI recorded profits of 588 million euros in 2024, an increase of 12% compared to the previous year, reflecting the growth in credit and the performance of the insurance sector.

The strong performance demonstrates the solid recovery of the banking sector after the pandemic, despite challenges such as inflation and regulatory changes.

This positive scenario may translate into greater dynamism in credit operations and increased capital for future investments.