Portugal’s unemployment rate for December 2025, released on January 7, 2026, registered at 5.70%, improving from November’s 5.90% and beating the consensus estimate of 5.90%[1]. This marks a continuation of the downward trend from a peak of 6.60% in May 2025. The 12-month average unemployment rate now stands near 6.00%, reflecting gradual labor market recovery since mid-2024.

Drivers this month

• Seasonal hiring in tourism and services boosted employment in December.
• Ongoing structural reforms in labor market flexibility contributed to job creation.
• Moderate GDP growth of 1.20% QoQ in Q4 2025 supported demand for labor.

Policy pulse

The unemployment rate remains above Portugal’s pre-pandemic lows (~5.00%) but is trending toward the European Central Bank’s (ECB) target zone for labor market slack. This supports the ECB’s cautious stance on monetary tightening, balancing inflation control with growth preservation.

Market lens

Immediate reaction: The EUR/JPY currency pair dipped 0.15% in the first hour post-release, reflecting mild disappointment in slower wage growth despite lower unemployment. Portuguese sovereign bonds saw a slight rally, with 10-year yields falling 3 basis points.

Portugal’s labor market improvement aligns with broader macroeconomic indicators. GDP growth accelerated modestly to 1.20% QoQ in Q4 2025, up from 0.90% in Q3. Inflation remains contained at 2.30% YoY as measured by the Harmonized Index of Consumer Prices (HICP), easing pressure on real wages and consumption.

Monetary Policy & Financial Conditions

The ECB’s key interest rate stands at 3.50%, unchanged since November 2025. Financial conditions remain moderately tight, with Portuguese bank lending rates stable at 4.10%. The unemployment decline supports the ECB’s view that labor market slack is diminishing, but wage growth remains subdued, limiting inflationary pressures.

Fiscal Policy & Government Budget

Portugal’s fiscal stance remains prudent, with the government targeting a deficit of 2.80% of GDP in 2025. Public investment in infrastructure and digitalization continues to support job creation, especially in urban centers. The government’s active labor market programs have helped reduce structural unemployment.

External Shocks & Geopolitical Risks

Global uncertainties, including energy price volatility and geopolitical tensions in Eastern Europe, pose downside risks. Portugal’s export sector, particularly automotive and textiles, faces potential headwinds from supply chain disruptions and slowing demand in key EU markets.

What This Chart Tells Us

Market lens

Immediate reaction: Portuguese equity index PSI-20 rose 0.40% following the release, reflecting investor optimism about improving domestic demand. The EUR/CHF pair remained stable, indicating balanced risk sentiment in the Eurozone.

Looking ahead, Portugal’s unemployment rate is expected to continue its gradual decline, supported by ongoing economic recovery and structural reforms. However, risks remain from external shocks and tighter financial conditions.

Bullish Scenario (30% probability)

• Stronger-than-expected GDP growth above 1.50% QoQ in early 2026.
• Acceleration in private investment and exports.
• Unemployment falling below 5.50% by mid-2026, fueling wage growth and consumption.

Base Scenario (50% probability)

• Moderate GDP growth around 1.00–1.20% QoQ.
• Unemployment rate stabilizing near 5.50–5.70% through 2026.
• Gradual improvement in labor market participation and productivity.

Bearish Scenario (20% probability)

• External shocks disrupt exports and investment.
• ECB accelerates monetary tightening, raising borrowing costs.
• Unemployment stalls or rises above 6.00%, dampening consumer confidence.

Portugal’s December 2025 unemployment rate of 5.70% confirms a positive labor market trajectory. The data from the Sigmanomics database underscores the country’s steady recovery from pandemic-era disruptions. While risks from global uncertainties and monetary policy remain, the labor market’s resilience bodes well for sustained economic growth and social stability.

Policymakers should continue balancing fiscal support with structural reforms to maintain momentum. Investors and market participants will watch wage trends and inflation closely as the labor market tightens further.

Key Markets Likely to React to Unemployment Rate

The Portuguese unemployment rate is a critical barometer for domestic economic health and influences several financial markets. Equity indices, sovereign bonds, and currency pairs sensitive to Eurozone labor market dynamics typically react to these releases. Below are five tradable symbols with historical correlations to Portugal’s labor market trends.

• PSI20 – Portugal’s main stock index, sensitive to domestic economic conditions and labor market strength.
• EURJPY – Reflects Eurozone risk sentiment and monetary policy expectations influenced by labor data.
• EURCHF – A safe-haven currency pair reacting to Eurozone economic stability signals.
• EUR – Euro currency broadly impacted by Eurozone labor market and inflation data.
• BTCUSD – Bitcoin, often viewed as a risk-on asset, can react to shifts in macroeconomic sentiment.

FAQ

What does Portugal’s December 2025 unemployment rate indicate?

Portugal’s 5.70% unemployment rate signals ongoing labor market recovery and improving economic conditions compared to prior months.

How does the unemployment rate affect Portugal’s monetary policy?

The declining unemployment rate reduces labor market slack, influencing the ECB’s decisions on interest rates and inflation targeting.

What are the risks to Portugal’s labor market outlook?

External shocks, tighter financial conditions, and geopolitical tensions could slow job growth and increase unemployment.

Updated 1/7/26

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.