The Bank of Portugal has today revised upwards its forecast for Portuguese Gross Domestic Product (GDP) growth in 2025 to 1.9% – partly driven by private consumption as a result of the reduction in personal income tax (IRS).
In the October Economic Bulletin released less than 24-hours since the government’s choice for governor, Álvaro Santos Pereira, officially took office, the central bank has predicted that GDP will grow by 1.9% compared to 2024, up from the previous relatively pessimistic forecast of 1.6% in June.
For the next two years, the central bank is keeping its projections unchanged: for 2026, it expects growth to be 2.2% and, for 2027, growth to be 1.7%, the same rate as projected in the previous bulletin.
“The 0.3 percentage point revision to GDP growth for 2025 reflects the incorporation of the most recent national accounts data and higher projected growth for the second half of the year,” says the central bank, explaining that the release of the annual national accounts results “revealed higher GDP growth in 2023 and 2024 (0.5 and 0.2 percentage points respectively)”.
The revisions “reflect a greater contribution from domestic demand”, due to “upward revisions in the contributions from private consumption, public consumption and investment” in 2023 and “a greater contribution from investment” in 2024.
At the same time, “the quarter-on-quarter change in GDP for the first quarter was also revised upwards by INE and that for the second quarter was higher than projected in the June Economic Bulletin (0.2 and 0.3 percentage points, respectively),” said the Bank.
Two measures were expected to help boost consumption: the reduction in personal income tax approved by parliament in July, which was reflected in workers’ and pensioners’ salaries from August, and the extraordinary supplement for pensioners in September.
In the latest bulletin, the Bank of Portugal refers to these two factors.
Between 2025 and 2027, Portugal is expected to grow above the eurozone average (2.0% compared to 1.2% in the single currency area). GDP per worker is 0.9%, while in the eurozone it is 0.6%, according to the central bank’s prediction.
If the 1.9% variation is confirmed, the level of GDP growth will still be below the figure forecast by Luís Montenegro’s government (PSD/CDS-PP) in the 2025 State Budget, which was 2.1%, says Lusa.
Last month, Finance Minister Joaquim Miranda Sarmento acknowledged that the rate “is below the goal, the government’s ambition”, although the performance continues to be higher than that of the eurozone.
According to the Bank of Portugal’s forecasts, private consumption is expected to grow by 3.3% this year, up from the previously projected 2.2%.
For public consumption, the central bank projects a 1.6% variation, also better than the 1.1% forecast in June.
For investment, gross fixed capital formation (GFCF) is predicted to increase by 3%, higher than the 2.1% estimated in June.
Domestic demand is expected to increase by 3.6%, surpassing the previously forecast 2.3% growth.
As for exports, the central bank predicts a slowdown, with sales abroad expected to grow by 1.1%, compared to 1.7% in June.
On the import side, it predicts a change of 4.7%, compared to 3.4% in the previous bulletin.
Previous governor Mário Centeno – put in place by the PS Socialist government of António Costa – also warned earlier this year of a looming deficit in public accounts that could last until 2027. His forecasts did not seem to be taken very seriously at the time.
Source material: LUSA
