Banco de Portugal predicts return of deficits due to new government (and opposition) measures
The Bank of Portugal anticipates that the Portuguese economy could return to a budget deficit situation due to recent measures announced by the Government, according to the June Economic Bulletin, released this Friday.
“The approval and announcement of new measures with budgetary impact in the weeks prior to the publication of this Bulletin conditions the assessment of the situation of public finances in Portugal in the coming years .”, can be read in the document, which also adds that “a return to a deficit situation is expected, putting at risk the desirable path for public expenditure within the scope of the new European budgetary rules”.
“These measures refer to the reduction of the IRS, the support package for young people, the extension of the VAT reduction on electricity, support for housing and health reinforcement, as well as salary reviews for various careers in the public service,” says the national supervisor.
But for now, without knowing specifically how much the measures announced by Luís Montenegro’s Executive will cost, the Bank of Portugal is looking at maintaining a surplus of 1% in 2024, from 0.8 % in 2025 and 0.6% in 2026 “without considering measures announced and/or already approved in the meantime†, he highlights.
Among the measures presented in the last 66 days of government, Mário Centeno’s current projections only include the abolition of tolls on the ex-SCUT (180 million euros from 2025) and the changes to the Solidarity Supplement for the Elderly (220 million euros, in a full year).
What was possible to count, for this year the Government has already committed, of course, around 540 million euros between IRS (despite the approved proposal being that of the PS, the values were from the Government), exemptions from IMT and taxes for young people, changes to rents and Porta 65, and 40 million euros for agreements with teachers. These accounts do not yet contain the values of negotiations with police, doctors, nurses or court officials.
ECB target for inflation only in 2026
As for economic forecasts, the regulator predicts that the Portuguese economy should grow 2% this year, and that inflation will only reach the European Central Bank (ECB) target in 2026. Economic projections do not undergo major changes compared to what was announced in March.
The regulator led by Mário Centeno predicts that inflation will stand at 2.5% this year, 2.1% in 2025 and 2% in 2026 (compared to 2.4%, 2% and 1.9% anticipated in March, respectively).
In the case of economic growth, the Gross Domestic Product (GDP) is expected to expand 2% this year, 2.3% next year and 2.2% in 2026 (compared to the 2%, 2.3% and 2.2% registered in previous projections).
As for unemployment, the Bank of Portugal is confident that it will remain practically unchanged in the coming years, as forecasts point to a rate of 6.5% in 2024 and 6.5% in the following two years (compared to the 6.5% predicted for the three years, in March).
