Bank of Portugal: lower immigration not hurting economic growth

Portugal’s efforts to create a more sustainable migration model are beginning to show results, with slower immigration helping to ease housing pressures without disrupting economic growth or job creation.

According the latest Economic Bulletin from the Bank of Portugal, the country’s net migration balance has fallen by more than half, dropping from around 13,200 people per month in 2024 to approximately 6,200 in 2025.

The decline reflects a combination of fewer arrivals and more departures, marking a notable change from the strong migration trends seen in recent years.

Despite the slowdown, Portugal’s central bank continues to forecast economic growth, net job creation and unemployment rates close to historic lows over the coming years, challenging concerns that tighter immigration rules could harm the economy.

The figures come as the government led by Prime Minister Luís Montenegro continues to implement reforms designed to create what it describes as a more sustainable migration system.

Portugal’s strong appeal to foreign workers and newcomers has driven one of the fastest increases in the country’s foreign resident population over the past decade. While this growth helped address labour shortages, expand the workforce and strengthen Social Security finances, it also added pressure to housing supply and public services.

The Bank of Portugal now expects more moderate population growth in the years ahead and forecasts a gradual reduction in the imbalance between new household formation and housing supply.

Sources cited by Nascer do Sol said the slowdown in migration is contributing to lower demographic pressure on the housing market, helping to improve overall conditions.

According to the central bank, Portugal accumulated a shortfall of around 300,000 homes over the past decade as construction failed to keep pace with rising demand. That gap is expected to close in 2025 as household growth slows and new housing supply increases.

Data from the Bank of Portugal indicate that growth in the number of households began to slow from 2024 onwards, coinciding with the introduction of stricter immigration policies.

Social Security figures also point to a significant shift. The average monthly number of new foreign registrations fell from 37,849 in 2023 to 13,135 in 2025, representing a decline of around 65%.

However, studies indicate that the stock of foreign contributors to the Social Security system continues to rise, supporting the long-term sustainability of public finances. In other words, foreign workers are contributing considerably more through payroll contributions than they receive in social benefits.

Over the past decade, the number of foreign nationals contributing to Portugal’s Social Security system has almost quadrupled, increasing their share of total contributors from 5.1% in 2015 to 19.7% in 2025. They now account for one in every five people paying into the Social Security system.

Reforms seek to align immigration with capacity

Government sources quoted by Nascer do Sol acknowledged that the rapid rise in immigration in recent years had placed growing pressure on housing, public services and the state’s administrative capacity.

One of the most visible challenges followed the closure of the former immigration agency SEF and the creation of the Agency for Integration, Migration and Asylum (AIMA), which inherited hundreds of thousands of pending applications.

The government has described the backlog of “expressions of interest”, CPLP (community of Portuguese-speaking countries) permits, renewals and transitional cases as one of the largest administrative challenges in Portugal’s recent history.

In response, the government launched a broad overhaul of migration policy led by Minister of the Presidency António Leitão Amaro and Secretary of State Rui Armindo Freitas.

The reforms are based on the principle that immigration remains essential to the economy but must be aligned with the country’s capacity for integration and administration.

Measures introduced include ending the “expression of interest” route, revising entry and residency rules, creating regulated migration channels linked to labour market needs, strengthening enforcement and reviewing nationality and family reunification rules.

The changes have been accompanied by a major administrative effort. As The Resident reported recently, authorities have completed more than 760,000 appointments, processed over 525,000 cases and issued around 500,000 residence permits.

Researchers say managed immigration remains essential

Government sources say migration flows remain positive, albeit at more moderate levels, while the economy continues to create jobs and employers retain access to the workers they need.

However, researchers caution that immigration will remain essential to addressing Portugal’s longer-term demographic and labour market challenges.

According to the Employment in Portugal Report by the Collaborative Laboratory for Work, Employment and Social Protection (Colabor), the country faces a structural risk driven by an ageing population, the continued emigration of young skilled workers and an inability to retain qualified talent.

The study identifies three major challenges: a mismatch between available skills and employers’ needs, demographic ageing combined with the loss of younger workers abroad, and persistently low productivity and wages.

Produced in partnership with the Minho Regional Business Confederation, construction group DST, Mota-Engil and Sonae, the report concludes that sustained, well-managed immigration will be necessary to prevent labour shortages from becoming a structural constraint on economic growth.

The Bank of Portugal forecasts employment growth of around 1% this year and 0.5% in 2027, while unemployment is expected to remain broadly stable through to 2028.

Portugal aligns migration reforms with new EU rules

Portugal’s reforms align with broader changes taking place across the European Union under the new Pact on Migration and Asylum, which introduces stricter border controls, faster returns and more coordinated migration management.

While officials acknowledge it will take several years to determine whether the trend is sustained, the latest indicators point to a new phase in Portugal’s migration policy — one focused less on managing emergencies and more on balancing economic needs with housing availability, integration capacity and social cohesion.

Sources: Nascer do Sol/Bank of Portugal