Bank Of Portugal Sets Lower Growth Forecast

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Bank Of Portugal Sets Lower Growth Forecast

Bank of Portugal Sets 2.4% As New Growth Forecast For 2024

The Bank of Portugal has lowered the growth forecast for the year 2024 from an earlier value of 1.5% to around 1.2%. The reason behind the downgrading of next year's growth forecast is political uncertainty and weak external demand.

The Central Bank of Portugal recently issued an economic bulletin in which it also expressed the growth forecasts for 2025 and 2026 as well. For the year 2025, the economic growth in Portugal will be 2.2%, which will move lower to around 2% in the year 2026.

For Portugal's economy, one of the biggest issues is stagnation, which has intensified in the last few months. In addition, the economy also faces an uncertain economic outlook in the short term. Overall, the economic risks are geared towards more downside in the next few years.

A Decline In Portugal's Budget Deficit

Although the economic growth is expected to go down, the one factor that will improve is Portugal's budget deficit. The forecasts suggest that Portugal's budget deficit will be around 0.1% of GDP in 2025. Earlier, the central bank had set a forecast of around 1.1%.

Another factor that is putting downside pressure on Portugal's economy is the high-interest rate environment. When this is combined with weak external demand, it becomes clear that the economy faces multiple headwinds.

Given how the country also earns most of its revenue from tourism, the recent economic setbacks will also affect the recovery of the tourism sector as well.

In addition, the country is also facing renewed uncertainty driven by the geopolitical tensions. Furthermore, the trouble at home is also growing, given the political situation of the different parties.

Last month, the prime minister of Portugal resigned from his post which means the country now faces an election next year (10 March 2024). The country's affairs are being handled by a caretaker government which doesn't hold much power over long-term decisions.

According to many analysts, the elections will lead to a weak and unstable government in Portugal. If this turns out to be true, it would be even worse for the country's economy. The central bank has also set a forecast for 2024's inflation near 2.9% which was earlier set at 5.3%.

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