Portuguese Elections: Montenegro's Victory Amid Right-Wing Surge
Portugal's parliamentary election has resulted in a third government change in three years, with Prime Minister Luís Montenegro's conservative Democratic Alliance (AD) securing 32.3% of the vote, an increase of 3.5 percentage points from the previous election.
However, the far-right Chega party emerged as a significant force, gaining 22.7% of votes (up 4.6 percentage points), nearly matching the Socialist Party (PS) which dropped dramatically to 23.4% (down 4.6 percentage points). This election marks a historic shift in Portugal's political landscape, with Chega breaking the traditional two-party system amidst growing public frustration over high living costs, housing shortages, and inadequate healthcare.
The result creates a complex coalition scenario, as right-wing parties now hold a parliamentary majority, but Montenegro has rejected alliances with Chega despite their ideological proximity on issues like immigration.
Forecast Scenarios (GCHQ)
Likely (55-75%): Unstable Minority Government with Case-by-Case Support
Montenegro forms a minority government with Iniciativa Liberal that survives for 12-18 months by negotiating individual policies with either the Socialists or Chega, depending on the issue. This arrangement allows for modest economic reforms but prevents any dramatic policy shifts. The government focuses on less controversial initiatives like digitalization and administrative efficiency while avoiding divisive topics like immigration. Economic growth continues at a modest pace of 1.5-2%, insufficient to substantially improve living standards, resulting in continued voter frustration and potentially another early election by late 2026.
Realistic Possibility (45-55%): Collapse of "Firewall" Leading to Right Coalition
Within 6 months, pressure from party members and political reality forces Montenegro to formally or informally incorporate Chega into his governing structure, effectively breaking the "firewall" against the far-right. This leads to more restrictive immigration policies and prioritization of native Portuguese citizens in social programs. International investors initially react negatively, but markets stabilize as the coalition delivers greater policy certainty. The arrangement lasts for 2-3 years, reshaping Portuguese politics by normalizing far-right participation in government, similar to developments in Italy and other European countries.
Unlikely (30-45%): Grand Coalition Between Conservatives and Socialists
Faced with governance challenges, Montenegro and the Socialist leadership negotiate a formal cooperation agreement focused on addressing Portugal's housing crisis and improving public services. This "grand coalition" approach, while initially unpopular with both parties' bases, provides political stability that attracts increased EU investment. The arrangement focuses on pragmatic economic policies that boost growth to 2.5-3% within a year while implementing targeted housing market regulations. However, this scenario risks further strengthening Chega as the only significant opposition voice, potentially leading to even greater polarization in the next election cycle.
