Portugal Bets on 1.8% Growth Despite Oil Shocks

The Bank of Portugal has maintained its 2026 economic growth forecast at 1.8%, signaling resilience amidst global economic uncertainties. This projection remains unchanged from earlier predictions, though it is slightly below the anticipated 1.9% expansion for 2025. Prospects are described as constrained by escalating oil prices, heightened uncertainty, and a more challenging external demand environment.

The central bank has also revised its fiscal outlook, now forecasting a budget deficit of 0.2% of GDP in 2026, an improvement from the previously projected 0.4%. This positive fiscal trend follows Portugal's rare budget surplus achieved in 2025, a notable accomplishment within the Eurozone.

In response to geopolitical events impacting energy markets, Portugal's inflation forecast for this year has been elevated to 3.1%, an increase from the 2.8% predicted in March. This rise follows a 2.2% inflation rate recorded in 2025. The economy experienced stagnation in the first quarter of 2026, influenced by severe weather events and global energy price volatility.

Bank of Portugal Governor Alvaro Santos Pereira indicated that while the potential resolution of Middle Eastern conflicts is positive, the normalization of energy operations will require time. He also commented on recent interest rate hikes, emphasizing their role in curbing inflationary spirals and the need to monitor potential second-round effects.