Despite the lack of a decisive win on Sunday, Passos Coelho vowed to continue with his government's pro-austerity policies, which have been attributed to helping the country's strong economic recovery.
The ruling alliance's lack of majority does not bode well, however. Apart from the fact that no minority government has lasted a full term since Portugal became a democracy in 1974, according to Reuters, policy wrangles could lie ahead as the coalition tries to form a government with the support of parties whose policy stances differ.
Antonio Barroso, vice president of risk consultancy Teneo Intelligence said in a note Sunday that the process of forming a government could be "messy."
"Despite its defeat, the ambiguous attitude of the opposition Socialist Party (PS) means that government formation could be difficult in the coming days, although incumbent Prime Minister Pedro Passos Coelho is still likely to be re-appointed," he said.
"However, the good result of the extreme-left Left Bloc (BE) will force the socialists to harden their stance towards the government, which does not bode well for political stability over the medium-term."
Over the next few days, Portugal's President Anibal Cavaco Silva will receive the different party leaders and will explore the available options for forming a stable government.
With socialist party leader Antonio Costa declaring he would not resign despite his party's defeat, "he also maintained an ambiguous line regarding the appointment of the new government, suggesting he will not make things easy for Passos Coelho," Barroso said.
Not only does Passos Coelho face the not-so-easy task of re-election, he has then to face the hurdle of submitting his policy program to a vote in parliament, Barroso said. If opposition parties chose to reject the program by an absolute majority vote, it would lead to the resignation of the government, he warned.