Bank of Portugal keeps growth at 1.8%, lifts inflation to 3.1% and warns on spending

Steady growth below government target

Bank of Portugal keeps GDP growth at 1.8% for 2026, unchanged from March, and forecasts 1.6% and 1.8% for 2027 and 2028. That lies below the government's outlook of 2% for 2026, a difference the central bank attributes to a more difficult international conjuncture.

Inflation upgraded on energy and services costs

The inflation forecast for 2026 was raised to 3.1% from 2.8% in March, driven by higher oil and fertiliser prices and persistent services inflation. The bulletin assumes an average oil price of €82.9 per barrel and notes, but does not incorporate, the recent Iran‑US ceasefire extension that could ease energy transport through the Strait of Hormuz.

2026

3.1 %

2027

2.4 %

2028

2 %

Data from the article text

Deficit returns after a surplus year

After a surplus in 2025, Bank of Portugal projects a deficit of 0.2% of GDP in 2026, widening to 0.5% in 2027 and 2028. The finance ministry still targets a 0.1% surplus. Governor Álvaro Santos Pereira said the gap is narrow:

“We are talking about values very close to zero. There is obviously room to reach a surplus, everything depends on the government and the economy.”

Banco de Portugal-0.2%

Government target0.1%

Banco de Portugal

-0.2 %

Government target

0.1 %

Data from the article text

Public expenditure breaches EU trajectory

Net expenditure is growing at an average 5.6% between 2025 and 2028, far above the agreed trajectory of 3.6%. The bulletin warns this could breach EU control thresholds by 2027, but an excessive deficit procedure is not expected because the fiscal balance remains near equilibrium.

“The growth of net spending above the limits set by European rules poses risks to budgetary sustainability, although it does not entail the opening of an excessive deficit procedure.”

Resilience amid caution

Bank of Portugal stresses the economy is better positioned than in 2022, with lower energy dependency and debt. Public debt is on track to fall from 89.7% of GDP in 2025 to 79.5% in 2028, dipping below the eurozone average. However, the governor cautioned against complacency given demographic pressures and external uncertainty.