Posted By Global Banking and Finance Review
Posted on December 13, 2024
By Sergio Goncalves
LISBON (Reuters) - The Bank of Portugal on Friday slightly raised its economic growth forecast for 2025, but predicted a small budget deficit of 0.1% of gross domestic product due to growing public spending, after an earlier projection of a surplus.
In its year-end economic bulletin, the central bank said the economy should expand 1.7% this year, with the growth accelerating to 2.2% in 2025, after 2.1% previously forecast. GDP is expected to grow also by 2.2% in 2026 and then 1.7% in 2027.
It lowered the budget surplus forecast for this year to 0.6% of GDP from 1% projected in October and made a sharp revision for 2025, to 0.1% deficit from 0.8% surplus. The deficit is expected to reach 1% in 2026, still well below the EU threshold of 3%.
The expected deficits "result from permanent measures already adopted by the government, with an impact on public expenditure and tax revenue", as well as loans from recovery funds and increased expenditure to ensure the continuity of projects financed by them.
"The public expenditure dynamics are a concern," governor Mario Centeno said.
The central bank said "the greater dynamism of activity over the next two years reflects an improvement in financing conditions, the expected acceleration of external demand and the greater inflow of resources from the European Union".
(Reporting by Sergio Goncalves; editing by Andrei Khalip)