Portuguese economy has worst quarterly drop since pandemic
While the Portuguese economy maintained positive year-on-year growth of 1.6% in the first quarter, it contracted by 0.5% in the first quarter compared to the final three months of 2024.
Portugal’s economy stumbled at the start of 2025, posting its worst quarterly performance since the height of the COVID-19 crisis.
According to flash estimates released this Friday by the National Statistics Institute (INE), the country’s Gross Domestic Product (GDP) contracted by 0.5% in the first quarter compared to the final three months of 2024.
This marks the sharpest sequential decline since the first quarter of 2021 and surprised economists who had anticipated a more modest slowdown.
While the Portuguese economy maintained positive year-on-year growth of 1.6% in the first quarter, this represented a significant deceleration from the revised 2.8% expansion recorded in the fourth quarter of 2024.
The INE attributed the weaker performance to two key factors: a slowdown in private consumption and a more pronounced negative contribution from net external demand, reflecting decelerating exports of goods and services.
The quarterly contraction follows a strong 1.4% growth in the previous quarter and represents the first negative reading since the third quarter of 2023, when GDP shrank by a modest 0.1%.
Negative surprise
Economists were particularly surprised by the negative turn, as most indicators available through February had not suggested an impending contraction.
BPI’s economic team described the figures as a “negative surprise,” noting that while retail sales and automobile purchases had shown resilience, card transaction data had hinted at weakening consumption.
The bank suggested the quarterly volatility might reflect a correction following exceptional factors in late 2024, including retroactive tax changes affecting household income and extraordinary pension supplements paid in October.
Looking ahead, analysts warn the disappointing start to 2025 increases the likelihood of downward revisions to full-year growth forecasts.
Caution
However, they caution against overinterpreting a single quarter’s data, pointing to Portugal's robust labor market, ongoing European fund inflows, and recent investment contracts as factors that may support recovery.
The INE’s more detailed second estimate, due on May 30, will provide clearer insight into the economy's underlying trends.
The Portuguese contraction contrasts with broader European trends, as the eurozone and EU grew by 1.2% and 1.4% respectively in the same period.
The INE also announced minor downward revisions (0.1 percentage points) to previous quarterly data, reflecting updated international trade statistics for late 2024.
This preliminary report, originally scheduled for Wednesday, was delayed due to disruptions from Monday’s nationwide power outage.
Source: National Statistics Institute (INE), BPI Economic Research