The Bank of Portugal recently raised its growth outlook for this year to 6.3%, up from 4.9% predicted in March, buoyed by the tourism recovery, though it said the consequences of war in Ukraine would be a drag after a blistering start to the year. Portugal’s economy experienced an 11.9% year-on-year surge in the first quarter, after growing 4.9% last year as it recovered from a pandemic-induced recession.

“We are revising the growth for the whole year of 2022 upwards,” central bank governor Mario Centeno told reporters. “But we have a downward revision in the second, third and fourth quarters because the international situation worsened after the unjustified invasion of Ukraine.” The previous central bank forecast was released before the first quarter growth data were known.

Centeno attributed the strong growth to a swift recovery of the tourism industry which should be back to pre-pandemic levels by mid-2022. Private consumption is also “projected to increase by 5.2% in 2022, with current savings declining”, but will decelerate in 2023-24.

In its quarterly economic report, the bank raised its inflation expectation for the full year to 5.9%, up from a previous target of 4%. Still, the bank sees inflation declining to 2.7% in 2023 and 2.0% in 2024.

Centeno said “there are downside risks for activity and upside risks for inflation, particularly for 2022”, warning that “a possible worsening of the impact of the invasion of Ukraine is the main reason behind such uncertainty and risks.” He said investment will continue to grow by 6% on average in 2022-24, close to that observed in 2021, “largely reflecting inflows of European [rescue] funds.”

Centeno said that in 2023 and 2024 economic activity is expected to grow by 2.6% and 2%, respectively. 

Further information

Banco de Portugal (The Bank of Portugal)