Portugal’s near-term outlook has strengthened considerably, supported by a pick-up in investment and continued growth in exports, as the recovery in the euro area has gained momentum. Portugal has also made commendable progress in addressing near-term risks. The strong 2016 fiscal outturn has allowed Portugal to exit the Excessive Deficit Procedure, while the 2017 fiscal deficit target also appears well within reach. There has also been notable progress over the past year to stabilize the banking system, although addressing banks’ large stock of non-performing loans and dealing with the substantial corporate debt overhang remain medium-term challenges. Progress on these fronts would facilitate more effective intermediation of financing to broad-based private investment, which is essential to support strong growth over the medium-term. Sustained strong growth, together with continued public debt reduction, would reduce vulnerabilities arising from high indebtedness, particularly when monetary accommodation is reduced.