In Lisbon, during the June Economic Bulletin presentation, which might have been Mário Centeno’s last as head of the Bank of Portugal with his term ending in July, the former Finance Minister issued several warnings about the economy after downgrading this year’s growth forecasts.
The forecast now projects GDP growth of 1.6% in 2025, compared to the 2.3% estimated in March’s bulletin and the 2.4% projection the government set in the progress report to Brussels.
Centeno warned that even this 1.6% growth forecast “has a significant downward risk,” requiring “fairly strong sequential growth for the rest of the year” following a first-quarter contraction of 0.5%.
The governor also highlighted the importance of immigrants to the economy, asserting that “without immigration, the Portuguese economy does not grow.”
According to Centeno, the “sustainability of the growth trajectory depends on the continuation of the immigration cycle,” which has contributed “immeasurably” to society, meaning “halting the immigration cycle is halting the economic growth cycle in Portugal.”
This comes at a time of caution in the labor market, with “six consecutive months of net job destruction” reported.
The governor also cautioned about public finances, criticizing the expansionary policy and increased net expenditure, which could jeopardize adherence to European budgetary rules.
There is a “risk of non-compliance with European rules on the horizon,” he warned, with net expenditure rising 5.4% in 2025 after an “enormous” 11.7% increase in 2024.
Centeno acknowledged that the figures depend on budget execution but pointed out that available information shows a “divergence over the years from the goals established and assumed with the European Commission.”
The governor further noted that fiscal policy has been expansionary, which is a “concern,” especially considering that the Social Security surplus is bolstering the public accounts surplus, but those amounts “are for paying future liabilities assumed today.”
Centeno argued that financial stability is necessary, noting that Portugal is a “leader in reducing public and private debt in Europe, which has given the country credibility,” which means “challenging these indicators undermines the sustainability of economic growth.”
“Our good position today in terms of these infamous macroeconomic imbalances that have troubled us in the past is measured by, for example, the international investment position, which continues to improve,” he highlighted, warning, “Undermining this path could bring us issues that, fortunately, we have managed to avoid in recent years.”
The bulletin also warns that “high public debt remains a vulnerability,” so “Portugal must maintain a trajectory of sustained debt reduction, mindful of the structural challenges that will continue to mark the near future: public investment, especially in climate transition, digitalization, defense, and the budgetary consequences related to population aging.”
The Bank of Portugal’s predictions indicate economic growth of 1.6% this year, 2.2% in 2026, and 1.7% in 2027, with budget deficits of 0.1%, 1.3%, and 0.9% of GDP in 2025, 2026, and 2027, respectively.
The public debt ratio is expected to drop from 94.9% in 2024 to 85.8% in 2027.
