Banco de Portugal more optimistic: Economy is expected to grow 2.3% this year

A portuguese economy is expected to accelerate in 2026, to 2.3%, driven by the funds of the Recovery and Resilience Plan (PRR), by budgetary measures and by a more positive performance of exports, estimates Banco de Portugal. 

“ In the following years, the activity is projected to grow 1.8%. Activity growth in the period 2026-28 is above that projected for the euro area. These projections they're high as published in the Economic Bulletin from June to 2026 (0.5 pp) and 2027 (0.2 pp)”, can be read in the notified released by the bank supervisor. 

A inflation is expected to increase to 3.1% in 2026 and decrease in the following years to values close to price stability (2.4% in 2027 and 2.0% in 2028), “beneficiating from the dissipation of the effects of energy shock and labour cost moderation”, and “this development is in line with that projected for the euro area and with the figures disclosed in the June Economic Bulletin”.

“The situation of labour market it will remain favourable, but less marked employment growth is anticipated in a context of migration flows lower than those observed in 2021-2024. Employment is expected to increase by 1.7% in 2026, by 0.7% in 2027 and by 0.3% in 2028, while the unemployment rate is expected to be 5.6%", reads. 

In addition, “the composition of growth should change, with a reduction in the contribution of private consumption and a greater contribution from exports. The real income of households should slow down, reflecting the slowdown in remuneration and, in 2026, also the impact of the unannounced rise in prices.”. 

The BdP reveals that “the risks are predominantly low for activity and high for inflation, being conditioned mainly by the evolution of geopolitical tensions in the Middle East.”.

“ The intensification or extension of the conflict could generate further increases in energy prices, disrupt supply chains and deteriorate confidence, penalise activity and increase price pressures. There is also the possibility of an abrupt correction of the financial markets, triggered by a reassessment of the expectations of return on investments in artificial intelligence or by fears about the budgetary situation of various economies”, can be read.

“ The Portuguese economy has shown resilience to recent shocks, benefiting from structural changes, including the improvement of qualifications, the increase in the weight of exports of services of higher added value and the reduction of debt. However, demographic challenges and the energy and digital transition require further progress in strengthening productive and technological capital, adequacy of population skills and removing obstacles to efficient resource allocation. The recent instability in international debt markets further reinforces the importance of preserving the fiscal balance and the path of reducing public debt in Portugal”, explains the bank supervisor.

[News update]