The Portuguese economy is forecast to grow around 2% this year and marginally rebound to 2.25% in 2025.

This is according to the latest forecast by the International Monetary Fund on Monday.

The IMF stated in its Staff Concluding Statement of the 2024 Article IV Mission that economic growth in Portugal is projected to remain under 2% in the medium term, attributed to the country's aging population, insufficient investment, and sluggish productivity growth.

In addition, headline inflation is forecast to drop to 2% in 2025, with core inflation also declining, the IMF went on to add.

“To balance growth and inflation objectives and further reduce debt, fiscal policy should aim at achieving a surplus in 2024 and stay broadly neutral thereafter,” according to the statement.

“For 2025, a broadly neutral fiscal stance, combined with the expected gradual loosening of the ECB’s monetary policy, will help achieve a soft landing of the economy. Any further relaxation of the fiscal stance would risk rekindling inflation,” it added.

The IMF highlighted that Portugal recorded a significant fiscal surplus in 2023, alongside a reduction in public debt by 36 percentage points of GDP since 2020. 

It also noted that Portugal's economic growth in 2023 continued to outpace the euro area average, while inflation decelerated more rapidly.

Furthermore, in June compared to the previous year, economic activity in Portugal decelerated, despite a slight uptick in industrial production. The CIP/ISEG barometer released on Monday indicated that there was a reduced contribution from net external demand.

“Only next month will it be possible to provide an estimate for GDP growth in the second quarter, however, it is already possible to predict that this growth will have a greater contribution from domestic demand, as opposed to a smaller contribution from net external demand,” according to analysis by the Portuguese Business Confederation (CIP) and the Higher Institute of Economics and Management (ISEG).