IMF revises Portugal’s 2026 GDP growth down again from 1.9% to 1.7%

The International Monetary Fund (IMF) has once again revised downwards its growth forecast for the Portuguese economy, from 1.9% to 1.7% this year, in its Article IV report, released today.

The projection represents a downward revision compared with the estimate in the April World Economic Outlook (WEO), which had itself already been revised down by 0.2 percentage points from the figure given in October last year.

It is also below the government’s forecast, which, in the annual progress report sent to Brussels at the end of April, had predicted a 2% increase in Gross Domestic Product (GDP) this year.

The IMF team emphasises that the negative effects of the war in the Middle East are expected to offset the impact of increased funding from the European Union.

On a more positive note, the “severe storms” that “hampered growth at the start of the year” are expected, ultimately, to have a “broadly neutral effect”, due to the “reconstruction and repairs”, which “are expected to boost activity later on”.

For 2027, the IMF now forecasts growth of 1.6% in Portugal, and 1.8% for 2028.

“The further slowdown expected in 2027 mainly reflects the end of investment funded by the Plan for Recovery and Resilience (PRR),” it explains.

Inflation (measured by the Harmonised Index of Consumer Prices), meanwhile, is expected to rise to 3.4% in 2026, driven by rising commodity prices and, to a lesser extent, wage pressures, before falling back to 2.3% in 2027 (as long as there are no other unforeseen global events that happen in the meantime).

IMF also ‘recommends’ scrapping support to young people buying first homes

In what may well be a very unwelcome ‘recommendation’, the IMF has also honed in on one of AD’s flagship policies after it took office (helping young people buy their first home), saying the support measures have “ultimately increased demand and worsened imbalances in the housing market”.

As a result, the institution recommends that the measures are scrapped, and new ones introduced that focus on the supply side of housing (not the demand).

Said the Article IV report: “The government’s new housing reform package contains elements that may stimulate supply, but it also increases fiscal expenditure (…) To achieve lasting improvements in affordability, reforms should focus on reducing supply constraints, such as easing licensing, permitting, zoning and land-use rules (as planned), rebalancing property taxation, and improving the functioning of the rental market.”

In addition, “well-targeted support should be provided to vulnerable households through dedicated social housing and housing subsidies.”

The exemption regime for Property Transfer Tax (IMT) and Stamp Duty was introduced by the Portuguese Government in August 2024, together with the public guarantee scheme, to help young people purchase their first home – which thousands have. If the measure is reversed, as the IMF says it should be, there is bound to be a lot of disappointment, as house purchasing will once again become even more expensive for first-time buyers.

Source material: Lusa/ noticiasaominuto/ SIC Notícias