Portugal's Credit Rating Soars to A: Fitch Upgrade Signals Strong Economic Recovery and Fiscal Stability

Fitch Elevates Portugal's Sovereign Rating to A

Fitch Ratings has upgraded Portugal's sovereign debt rating by one notch to A this Friday, as anticipated, according to a statement from the agency. The outlook has shifted from positive to stable.

One of the key factors for this upgrade is the continuous reduction in public debt, which fell to 96.4% of GDP in the first quarter of 2025, down from over 134% in 2020. This represents "one of the largest declines among sovereigns rated by Fitch".

"The decline reflects robust growth and significant primary surpluses supported by a strong track record of prudent fiscal policy," the statement notes. Fitch projects a further decrease to 88.4% by the end of 2027.

Additionally, the agency highlights the "balanced fiscal position", forecasting a slight surplus of 0.1% this year. However, by 2026, Fitch expects a deficit of 0.7%, driven by increased loans from the Recovery and Resilience Plan (PRR), additional tax cuts, and rising public investment. The deficit is anticipated to drop to 0.4% of GDP in 2027 as PRR funding expires and investment activity slows.

The outcome of the May elections "supported a broad continuation of fiscal policy", with limited disruption and no significant obstacles to approving the 2026 State Budget, ensuring political continuity.

Regarding GDP prospects, they are resilient, with growth projected at 1.8% in 2025, fueled by rising real incomes, a robust labor market, and PRR-supported investment, though net exports may moderately weigh on growth. In 2026, growth is expected to accelerate to 2.2%.

However, risks to growth persist, "primarily driven by external challenges", including a sharp slowdown in EU trading partners. While US-EU trade tensions have eased, US tariffs on Portuguese goods pose ongoing challenges.

Fitch had maintained the A- rating with a positive outlook in March, influenced by the political crisis at the time. In September 2024, the agency upgraded the outlook to positive, signaling a potential rating improvement within six to 24 months.

This marks the fourth rating upgrade for Portugal this year, following similar moves by DBRS on January 17, Standard & Poor's on February 28, and again on August 29. Portugal now occupies the sixth highest level in Fitch's scale.

The government responded via a Finance Ministry statement, emphasizing the second rating increase in two weeks after S&P's decision. "As the rating is crucial for how the country is perceived by external investors and for its financing costs, this second upgrade is excellent news for Portugal and the Portuguese," the statement reads.