Banco de Portugal has raised its economic outlook considerably since its previous forecast, when it expected GDP to grow by just 1.8% this year.

It has also become more optimistic about 2027, raising its growth forecast from 1.6% to 1.8%.

The change means the central bank is now expecting Portugal to perform better this year than the Government itself had forecast in April, when it predicted growth of 2%.

So what has changed?

According to Banco de Portugal, several parts of the economy have proved stronger than expected.

Money flowing into the economy through Portugal’s Recovery and Resilience Plan (PRR) is helping to support activity, while government spending measures are also playing a role.

Exports have performed better too.

In fact, the bank expects exports to become increasingly important to Portugal’s growth, while household spending contributes a little less.

Not all good news for households

The stronger economy doesn’t necessarily mean families will immediately feel better off.

Banco de Portugal expects real household income growth to slow, partly because wages are rising more slowly and partly because prices have increased more than previously expected.

Inflation is now forecast to reach 3.1% this year.

That is expected to ease to 2.4% in 2027 and return to around 2% in 2028.

The new forecast marks quite a turnaround from earlier in the year.

In March, Banco de Portugal cut its 2026 growth forecast to 1.8%, citing the economic effects of the conflict in the Middle East, higher energy prices and extreme weather at the beginning of the year.

At that point, the outlook for Portugal had become noticeably more cautious.

Six months later, the picture looks considerably stronger.

Recent economic figures have helped support that change. Portugal’s economy grew 2.5% year-on-year in the second quarter of 2026, while GDP increased by 0.8% compared with the previous quarter.

The latest forecast suggests that the central bank now expects that momentum to carry through the rest of the year.

Growth is still expected to slow in 2027, however, as some of the factors supporting the economy this year begin to fade.

For now, Banco de Portugal’s latest assessment is a relatively upbeat one: Portugal is growing faster than it expected just a few months ago.

Whether households feel quite as optimistic may depend on how quickly inflation comes back down.

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