EXECUTIVE SUMMARY Portugal has been pursuing a path of strengthening economic growth and convergence towards the European Union, coupled with a trajectory of balanced public accounts. All the goals outlined in the Government Program at the beginning of the legislature will be met in 2019.

In 2018, the Portuguese economy is expected to grow 2.3%, again above the euro area (2%) and continuing the economic expansion that has been in place for 19 consecutive quarters. In 2019, growth is expected to reach 2.2%, supported by significant increases in investment (7%) and exports (4.6%). Improvements in labour market conditions are expected to bring the unemployment rate down to 6.9% in 2018 and 6.3% in 2019. The economy grows in a context of declining household and corporate indebtedness, anchored in structural reforms in skills, investment, export-orientation and labour market efficiency.

The progress achieved so far has been translated to tangible results in terms of fiscal consolidation. In 2018, the general government deficit is expected to reach 0.7% of GDP, a 0.4 pp improvement compared to the target defined in the State Budget 2018, and hitting the target set in the Stability Program 2018-2022.

These developments reflect a strategy of careful management of the public finances, with a particular focus on improving the quality of public expenditure. Portugal is, today, a credible economy in the eyes of foreign investors and international institutions. Meeting budgetary targets and gaining internal and external credibility paved the way for the exit from the Excessive Deficit Procedure and the list of European countries with excessive macroeconomic imbalances.

The subsequent upgrade of the sovereign rating to investment grade by the three main credit rating agencies has brought about a significant improvement in the financing conditions of households, companies and the State. Portugal has made a fully successful comeback to the markets. The country has had one of the best financial performances in the European Union during the current legislature, with a significant fall in interest rates (-98 b.p. between 2015 and 2018), reflecting greater confidence and sustainability of Portugal’s sovereign debt.

This is the result of the effort and merit of the Portuguese people, to build a more solid economy and to ensure that the State is built on credible commitments. The choices made in each of the last three budgets have led the country to a path of credibility, social stability, and inclusive growth. An alternative and responsible policy has proven to be possible. One which ensures growth, job creation and the strengthening of social cohesion, coupled with rigor in the management of the public finances and an effective process of fiscal consolidation.

Over the course of three consecutive years, Portugal has managed to protect growth while improving systematically the balance of public finances. This is the way forward. The State Budget for 2019 projects the continuation of this strategy, offering trust and predictability. It projects a renewed focus on sustainable fiscal consolidation, in parallel with initiatives designed to promote inclusive growth, employment, productive investment and improving public services:

 New measures to support families, the competitiveness of the business sector, tackle fraud and tax evasion, and to simplify the relationship between taxpayers and the tax administration.

 In the Social Protection area, the Government foresees a real increase in purchasing power of around 78% of all pensions; an upgrade of the lowest pensions; a new early retirement scheme; and increases in some types of family allowances.

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