MARKET STATUS
ECONOMIC SUMMARY - STILL ON THE 1ST QUARTER OF 2025
The United States are going through a delicate fiscal moment. In the midst of budget negotiations, the figures are increasingly difficult to ignore: the public deficit stands at 6.5% of GDP, gross public debt is around 120% of GDP and the annual cost of debt servicing already represents 3.8% of GDP. These historic levels are calling into question the credibility of American sovereign debt, which is reflected in the recent downgrades by rating agencies. Moody’s, for example, projects that the deficit could reach around 9% of GDP by 2035 (currently 6.4%), while federal debt could climb to 134% of GDP over the next decade.
This scenario raises doubts about the ability of the United States to maintain its central role in the global economic order: as a provider of essential public goods, defender of free trade, issuer of a stable currency and lender of last resort. The new world order remains undefined, with the US and China increasingly in direct confrontation, after a parallel and advantageous economic coexistence.
On the Portuguese side, the signs are mixed. The economic growth estimate for 2025 was revised downwards, from 2.4% to 1.7%. Household consumption is showing signs of slowing down, with the temporary effect of lower IRS withholdings and extraordinary support for pensioners having run out. The Government now intends to repeat the measure with a new reduction in IRS withholdings.
On the other hand, both investment and exports are falling. In the labour market, the unemployment rate is expected to stabilise at 6.4%. Even so, the net balance is positive: around 120 thousand jobs were created compared to the same period last year. Inflation, on the other hand, is expected to be 2.1% and within the ECB's target, which, after eight consecutive cuts, is now expected to keep key rates unchanged for some time.
In the first quarter of 2025, the Portuguese residential real estate market showed clear signs of dynamism. The House Price Index recorded a year-on-year increase of 16.3% and a quarter-on-quarter increase of 4.8%. A total of 41,358 homes were sold, an increase of 25% compared to the same period in 2024. The average price of homes sold reached 232,500 euros, representing a year-on-year increase of 14%.
In the last 12 months, the average house price grew by 11.4%, a trend that is expected to continue throughout 2025. The combination of a supply that is growing at a modest pace and even more favourable interest rates is sustaining consistent demand. In May, the median value of bank appraisals stood at €1,886/m² (+17.1% compared to 2024), with the Setúbal Peninsula recording the largest year-on-year change (+21.1%). Portugal is moving forward cautiously in an uncertain international context, where the stability of real assets such as real estate could prove to be an anchor of confidence.
Sources: INE, BdP, BPI Research, Eurostat, Yahoo Finance; ECB, Turismo de Portugal
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INVESTING: BETWEEN THE TANGIBLE AND THE FINANCIAL
Investing is, above all, a decision for the future. It is about responsibly choosing where to invest today's resources, with the clear intention of reaping the rewards tomorrow. However, this decision, however rational it may seem, requires (deep) personal reflection: on the objectives, the risks, the time and, above all, the profile of the investor.
Some people seek security, others seek returns. Some want to preserve, others to multiply. But the truth is that everyone faces the same question: “Where should I invest?”. And this path begins with another, more essential question: “What kind of investor am I?”
Investing is not a game of luck. It is not about guessing the next asset that will appreciate, but rather about aligning choices with real goals and with each person's risk tolerance. An investment that works for a single 30-year-old with a high appetite for risk may be disastrous for a retired couple who depend on their monthly income. The starting point is to understand your own profile: More conservative or more daring? Are you more concerned with immediate income or future appreciation? With liquidity or with equity? The answer to these questions will allow you to outline a realistic and sustainable investment strategy. And only then can you move on to analyzing the existing alternatives.
Real estate investment has a unique characteristic: it is tangible. It can be touched, visited, modified. For many investors, especially in Portugal, this tangible aspect offers a sense of security that is difficult to replicate with other assets. In addition, real estate allows you to generate income in a variety of ways (renting, selling, managing) and allows you to achieve attractive rates of return, often higher than those of more conservative financial products. The investor can also see the value of the asset increase through improvements, strategic positioning in the market and through inflation.
However, it would be a mistake to ignore its risks and requirements. Investing in real estate is almost always a slow process. It requires time, attention and the ability to deal with unforeseen events and, most importantly, real estate investment is subject to uncertainties regarding the schedule and volatility in the exit value. Construction work can slip, permits can be delayed, markets can change due to changes in the economic situation or changes in the tax policy in force at the time of sale. And unlike a financial product, real estate does not have immediate liquidity: selling a property can take months, or even longer, especially in adverse circumstances. Real estate tends to offer higher returns, but at the cost of more time, more capital and greater unpredictability. On the other hand, there are financial products: shares, bonds, participation units, ETFs, treasury certificates, savings certificates, among others.
These instruments offer clear advantages: immediate liquidity, accessibility with little capital and low-cost diversification. In minutes, an investor can buy shares in companies, debt securities from different countries or funds with exposure to hundreds of assets. All this with the possibility of monitoring the value of the investment daily and easily withdrawing funds. On the other hand, this liquidity and simplicity come at a price. Most financial products with guaranteed capital (such as term deposits or bonds) offer modest returns. Instruments with greater potential for return (shares or equity funds) are more volatile and require a long-term vision and the emotional capacity to withstand temporary drops in their value.
It is also important to note that many investors feel a distance from financial products: they do not understand them, do not directly control them and sometimes do not know how to assess the real risk of each instrument. This leads to poorly informed decisions or decisions guided only by “tips” and trends, which is always a risk in more volatile markets.
There is no such thing as the “right” investment. The best investment will always be the one that respects the investor’s time, objectives and emotional profile. For some, real estate is a safety net, for others it is a source of anxiety. For some, the financial markets are a powerful tool, for others they are unknown territory. The essential thing is to invest consciously. With knowledge. With a plan. And with the understanding that, as in any journey, the most valuable fruits are those that require time, patience and vision.
Nuno Santos, Asset Manager
MONTH'S
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July 2025
