On October 7th, the Bank of Portugal (BdP) released its October Economic Bulletin, presenting more favorable perspectives for the Portuguese economy compared to the June bulletin. Economic growth was revised to 2.3% in 2026 (an increase of 0.5 percentage points) and 1.8% in 2027 (up 0.2 percentage points).
This increased momentum in 2026 is linked to the execution of PRR funds, fiscal measures such as the extraordinary pension supplement and the reduction of IRS, and the performance of exports. All components of global demand were revised upwards, with investment, measured by Gross Fixed Capital Formation, expected to see the largest growth of 5.6% in 2026, driven by the public component. A slowdown is anticipated for 2027, followed by a recovery in 2028.
Private consumption is expected to slow down until 2028, in line with the moderation in the growth of real household income. Exports, which saw the largest revision in 2026 (up 1.5 p.p.), are expected to continue growing in the following years at a rate of 3%, with greater relative dynamism in goods exports and non-tourism services.
The institution maintained its inflation estimate (measured by the IHPC) for 2026 at 3.1%, an acceleration from the previous year due to energy prices. Inflation is expected to moderate in the following years, reflecting the slowdown in most components, as well as labor costs.
The main risks highlighted by the BdP concern geopolitical tensions in the Middle East and the possibility of an abrupt correction in financial markets. The BdP advises a prudent fiscal policy to ensure the capacity to respond to challenges such as defense spending, public investment needs, and population aging.
