Portugal’s central bank has lowered its economic growth outlook for 2022 to 4.9% from 5.8% forecast in December, along with higher inflation than previously expected due to the war in Ukraine.

This indicates that GDP would still increase in line with a revised figure of 4.9% last year, when it rallied from the pandemic-fuelled recession. However, the Bank of Portugal also cautioned growth could be lower in an unfavourable scenario.

As part of its quarterly bulletin, the central bank forecast harmonised inflation in the country to speed up to 4% in 2022 from 0.9% in 2021. In December, the bank placed this year’s consumer prices increase at 1.8%. That said, it forecasts inflation will slow down to 1.6% in 2023 and 2024, Reuters reports.

“The invasion of Ukraine by Russia at the end of February contributed to intensifying inflationary pressures and limiting the economic dynamics in the euro area and in Portugal,” the central bank stated, also highlighting a fall in consumer and business confidence.

As such, private consumption is expected to grow 3.6% in 2022, falling short of the 4.8% figure forecast back in December.

In addition, Governor of the central bank, Mario Centeno said that in an adverse scenario, Portugal’s GDP would increase by just 3.6% in 2022 whilst inflation could reach 5.9%, depending “on the evolution of the oil and natural gas prices.”

Centeno added that if energy prices stay high for a prolonged time, they may be “transmitted, as a contagion, to other components.”

Nevertheless, the central bank said exports are forecast to grow 14.2% in 2022, up from the December forecast of 12.7%, bolstered by a robust recovery of exports of services following the pandemic. Economic growth should decelerate to 2.9% next year and to 2% in 2024, the Bank of Portugal added.