LISBON (Reuters) - The Bank of Portugal on Friday lowered next year's economic growth forecast to 1.2% from 1.5% it had set in October, in a slowdown from this year's expected 2.1% expansion, citing weakening external demand and political uncertainty at home.
In its year-end economic bulletin, the central bank said it expected the economy would expand 2.2% in 2025 and 2.0% in 2026.
"The Portuguese economy has stagnated in recent quarters and the short-term outlook is uncertain, with downside risks predominating," the bank said in a statement.
The budget deficit is likely to fall to the equivalent to 0.1% of the country's gross domestic product next year, down from 1.1% expected this year.
The economy is being impacted by high interest rates and weakening demand from abroad, along with the dissipation of the momentum associated with the post-pandemic tourism recovery.
"The prospects are conditioned by uncertainty of new geopolitical tensions and the national political situation," it said.
Following the resignation of Prime Minister Antonio Costa on Nov. 7, Portugal will hold a snap election on March 10. The caretaker government will not be able to make long-term decisions until a new administration takes office.
Many analysts believe that the vote could result in an unstable government, without crucial majority support in parliament.
The Central Bank put Portugal's euro area-harmonised inflation at 2.9% in 2024, down from an expected 5.3% this year.