Portugal's Unemployment Rate Holds Steady at 6.5%: Stability Amid Global Crosscurrents

Portugal’s unemployment rate remained unchanged at 6.5% in March 2025, according to Statistics Portugal, marking the first month of stability after dipping to 6.4% in February. While the rate remains near historic lows, the stagnation underscores a labor market navigating both opportunities and risks. For investors, this data offers a window into Portugal’s economic resilience—and vulnerabilities—in a year dominated by geopolitical tensions, shifting trade policies, and domestic political uncertainty.

Tourism: The Engine of Growth, But Not Without Hurdles

Tourism remains Portugal’s economic lifeline. In 2024, the sector contributed 16% of GDP, and while early 2025 saw a January slowdown, February and March data showed a rebound. However, the recovery is uneven. Services inflation—a key proxy for tourism demand—moderated to 5.0% year-on-year in Q1 2025, down from 5.3% in 2023, as global uncertainty and rising travel costs dampen demand.

Investors should note that tourism’s reliance on external factors like U.S. travel demand and energy prices makes it vulnerable. For instance, U.S. tariff threats on EU goods could indirectly hurt Portugal’s tourism by raising costs for American visitors.

Manufacturing and Exports: Riding the EU Recovery Wave

Portugal’s manufacturing sector, though smaller than tourism, is gaining momentum. Public investment, fueled by the EU Recovery and Resilience Plan (RRP), is driving growth in infrastructure and green tech. Public investment is projected to surge 16% in 2025, peaking in 2026 before tapering as RRP funds expire.

However, manufacturing faces headwinds. Sectors like textiles and footwear—critical to Portugal’s exports—could suffer if U.S. tariffs on EU goods materialize. These sectors account for 12% of Portugal’s exports, and a 10% tariff hike would reduce GDP by up to 0.5%, according to Banco de Portugal estimates.

Labor Market: Stability Masks Structural Challenges

While the headline unemployment rate is stable, deeper metrics reveal uneven progress. Portugal’s labor underutilization rate—including part-time workers seeking full-time roles—remained at 11.0%, unchanged since November 2024. Youth unemployment (under 25) stands at 20.9%, highlighting skill mismatches and barriers to entry for younger workers.

The labor force participation rate, at 68.6%, is near record highs, driven by immigration and older workers delaying retirement. This bodes well for short-term stability but raises long-term questions about productivity and aging demographics.

Policy Crossroads: Elections and Fiscal Prudence

Portugal’s May 2025 parliamentary elections add uncertainty. Incumbent and opposition parties have sparred over fiscal priorities, with spending pledges potentially upending the 0.7% budget surplus achieved in 2024. A shift toward expansionary policies could boost near-term growth but risk inflation and debt sustainability.

Meanwhile, the ECB’s 2.5% benchmark rate—unchanged since late 2022—continues to weigh on borrowing costs. Lower rates in 2026 could ease pressure on businesses, but they depend on inflation staying below 2%.

Investment Implications: Navigating the Crosscurrents

For investors, Portugal presents a mixed picture:

1. Tourism Plays: Companies like Sonae Sierra (owner of shopping centers) and Porto Santo Tourist (hotel operator) benefit from tourism’s cyclical upturn but face valuation risks tied to inflation and geopolitical shocks.

2. RRP-Backed Infrastructure: Firms involved in green energy (e.g., EDP Renováveis) and transportation projects are poised to profit from public spending.

3. Export Caution: Investors in sectors exposed to U.S. tariffs—such as Sonae MC (textiles) or Mota-Engil (construction)—should monitor trade policy developments closely.

4. Domestic Consumption: Retail and consumer staples (e.g., Continente) could gain from a stable unemployment rate boosting household confidence, though savings rates near 12% suggest caution persists.

Conclusion: A Stable, but Fragile, Outlook

Portugal’s unemployment rate at 6.5% reflects a labor market resilient to global headwinds. The economy’s 2.3% GDP growth projection for 2025 hinges on tourism recovery, RRP-funded investment, and fiscal discipline. However, risks loom large:

• Trade Policy: A U.S. tariff hike could shave 0.5% from GDP.
• Political Uncertainty: Election outcomes may disrupt fiscal plans.
• Demographics: An aging workforce and youth unemployment highlight long-term challenges.

For now, investors should favor defensive sectors tied to domestic demand and EU-funded projects while hedging against external shocks. Portugal’s stability is real—but its future depends on navigating crosscurrents with precision.

In summary, Portugal’s economy remains a story of cautious optimism, but its journey from recovery to sustained growth will test policymakers and investors alike.