LISBON (Reuters) – The Bank of Portugal on Friday lowered next year’s economic growth forecast to 1.2% from 1.5% it had set in October, in a slowdown from this year’s expected 2.1% expansion, citing weakening external demand and political uncertainty at home.
In its year-end economic bulletin, the central bank said it expected the economy would expand 2.2% in 2025 and 2.0% in 2026.
“The Portuguese economy has stagnated in recent quarters and the short-term outlook is uncertain, with downside risks predominating,” the bank said in a statement.
The budget deficit is likely to fall to the equivalent to 0.1% of the country’s gross domestic product next year, down from 1.1% expected this year.
The economy is being impacted by high interest rates and weakening demand from abroad, along with the dissipation of the momentum associated with the post-pandemic tourism recovery.
“The prospects are conditioned by uncertainty of new geopolitical tensions and the national political situation,” it said.
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Following the resignation of Prime Minister Antonio Costa on Nov. 7, Portugal will hold a snap election on March 10. The caretaker government will not be able to make long-term decisions until a new administration takes office.
Many analysts believe that the vote could result in an unstable government, without crucial majority support in parliament.
The Central Bank put Portugal’s euro area-harmonised inflation at 2.9% in 2024, down from an expected 5.3% this year.
(Reporting by Sergio Goncalves; editing by Andrei Khalip and Alexander Smith)