Growth in jobs begins to cool
Portugal’s labor market is expected to enter a period of slower expansion, according to new forecasts from the Bank of Portugal. While employment levels remain historically high, the central bank projects that job creation will lose momentum over the coming years, with unemployment expected to stabilise 2027 rather than continue falling.
The outlook reflects a broader shift in economic conditions. After several years of strong post pandemic recovery, the Portuguese economy is moving into a more mature phase of the cycle, where growth is steadier but less dynamic. This transition is expected to have a direct impact on hiring across multiple sectors.
From rapid recovery to moderation
Portugal experienced robust employment growth following the pandemic, driven tourism, services, construction, and a rebound in domestic demand. Labor shortages became common in certain industries, and unemployment fell to some of its lowest levels in decades.
According to the Bank of Portugal, this phase is now easing. As economic growth moderates and external conditions become more uncertain, companies are expected to slow hiring plans. This does not imply a sharp deterioration in the labor market, but rather a return to more sustainable and cautious employment dynamics.
Unemployment expected to stabilise
One of the key messages from the central bank’s forecast is that unemployment is not expected to rise significantly. Instead, it is projected to stabilise 2027. This suggests that while fewer new jobs may be created, widespread job losses are not anticipated under current assumptions.
Stabilisation reflects a balance between slower hiring and continued demand for labor in certain areas. Demographic trends, including an aging population and a smaller working age cohort, also help limit upward pressure on unemployment even as economic growth cools.
Sectoral differences will shape outcomes
The employment slowdown is unlikely to be evenly distributed. Sectors that expanded rapidly during the recovery phase may see sharper adjustments. Construction and some tourism related activities could experience more cautious hiring as investment and consumer spending normalize.
contrast, areas linked to technology, renewable energy, healthcare, and specialized services are expected to remain more resilient. These sectors benefit from longer term structural trends rather than short term economic cycles, supporting steadier employment demand.
Productivity and wages gain importance
With employment growth slowing, the Bank of Portugal highlights the importance of productivity improvements. In recent years, much of Portugal’s economic expansion has come from higher employment rather than efficiency gains. As job creation cools, future growth will increasingly depend on producing more value with the existing workforce.
This shift has implications for wages. Slower hiring could reduce upward pressure on salaries in some sectors, but productivity driven growth could support more sustainable wage increases over time. The challenge for policymakers and businesses will be ensuring that moderation in employment does not translate into stagnation in living standards.
External risks weigh on confidence
The central bank’s forecast also reflects external uncertainties. Slower growth in key European economies, tighter financial conditions, and geopolitical tensions all influence business confidence and investment decisions. For a small open economy like Portugal, these factors play a significant role in shaping labor market outcomes.
At the same time, Portugal’s improved fiscal position and more diversified economy provide a buffer against shocks. This helps explain why the Bank of Portugal does not foresee a sharp rise in unemployment despite a slowdown in job creation.
Implications for workers and policymakers
For workers, the forecast suggests a more competitive job market ahead, particularly for less skilled roles. Upskilling and adaptability are likely to become more important as companies focus on efficiency and selective hiring.
For policymakers, the message is one of caution rather than alarm. Maintaining active labor market policies, supporting training, and encouraging investment in high value sectors will be key to managing the transition from rapid recovery to stable growth.
A labor market entering a new phase
The Bank of Portugal’s outlook points to a labor market that is no longer accelerating but remains fundamentally stable. Employment growth is set to slow, unemployment is expected to level off, and the focus is shifting toward quality rather than quantity of jobs.
This new phase reflects a more mature economic cycle. If managed well, it can support balanced growth and long term resilience. The challenge will be ensuring that slower employment growth does not widen inequalities or leave parts of the workforce behind as Portugal’s economy continues to evolve.
