Portugal central bank keeps 2026 growth view, trims deficit forecast

By Sergio Goncalves

LISBON, June 15 (Reuters) - The Bank of Portugal on Monday kept its 2026 economic growth forecast at 1.8% and lowered the budget deficit projection, while anticipating an increase in inflation due to higher oil prices as a consequence of the Middle East conflict.

It forecast a budget deficit of 0.2% of GDP in 2026, compared with 0.4% projected in December. In 2025, Portugal had a budget surplus of 0.7% of GDP - a rare achievement in the euro zone where deficits have been the norm. 

In its quarterly economic bulletin, it kept the growth forecast at the same level as predicted in March and just below the 2025 expansion of 1.9%, and said growth prospects are "constrained by higher oil prices, elevated uncertainty, tighter financial conditions and weaker external demand." 

It expects growth to slow down further to 1.6% next year before returning to 1.8% in 2028.

Portugal's economy stagnated in the first quarter compared to the previous three months, hit by severe storms and floods in January and February, as well as the impact of the Iran war on energy prices.    

The central bank raised its EU-harmonised inflation forecast for this year to 3.1%, from 2.8% in March, which comes after 2.2% in 2025. 

Governor and ECB policymaker Alvaro Santos Pereira told a news briefing it was "not worth speculating" on the next ECB interest rate decision in July.

He noted that although the potential end of the conflict after the United States and Iran agreed terms to cease hostilities, would be a positive, energy operations in the Middle East would take time to normalise.

Regarding last week’s ECB rate hike, he said it was aimed to prevent an inflationary spiral, adding that inflationary second-round effects across the economy have not yet been observed, "but could emerge and must be monitored".

(Reporting by Sergio Goncalves; editing by Andrei Khalip and Chizu Nomiyama )