The European Commission has revised down its economic forecasts for the European Union, the eurozone and Portugal, warning that the war launched by the United States and Israel against Iran has changed the outlook for growth and energy prices across the bloc.
Portugal is still expected to perform better than its eurozone partners and the wider European Union, but Gross Domestic Product growth will not prevent the country from returning to budget deficits.
Brussels now expects Portugal to record a public deficit of 0.1% of GDP in 2026, worsening to 0.4% in 2027, instead of the balanced budget projected by the Government.
Valdis Dombrovskis, the European Commissioner for Economy, said in Brussels on Thursday that “the outlook has changed substantially since the start of the conflict”, with market volatility, uncertainty and worsening financing conditions affecting all economic indicators.
The Commission now expects the Portuguese economy to grow 1.7% in 2026 and 1.8% in 2027, cutting five tenths from the projections it issued in the autumn.
In November, Commission officials had forecast growth of 2.2% this year and 2.1% in 2027.
The Government has also revised its forecasts down, but still expects the economy to grow 2% this year.
The eurozone outlook is weaker, with growth now forecast at 0.9% in 2026, down 0.3 percentage points from the autumn forecast, before recovering slightly to 1.2% in 2027.
The European Union as a whole is expected to grow 1.1% in 2026 and 1.4% in 2027.
The Commission said the Portuguese economy faced “a series of unexpected shocks” at the start of 2026, beginning with severe storms in January and February, followed by a sharp rise in energy prices in March and April.
As a result, economic sentiment deteriorated and GDP growth slowed from 0.9% in the fourth quarter of 2025 to preliminary stagnation in the first quarter of 2026.
Brussels expects the situation to improve gradually later this year and in 2027, supported by reconstruction in storm affected areas, the final phase of the Recovery and Resilience Plan (Plano de Recuperação e Resiliência, PRR), and the use of European funds to boost investment.
But the Commission warned that risks remain tilted to the downside, especially because Portuguese growth is linked to consumption, tourism and air passenger arrivals, while uncertainty over the global supply of aviation fuel adds another vulnerability.
The Commission acknowledged that Portugal’s 0.7% budget surplus in 2025 was “better than expected”, but said the fiscal cushion has now been exhausted.
It attributes the expected deficits partly to Government support measures introduced after the January and February storms, and partly to earlier measures that worsened the budget balance, including cuts to personal and corporate income tax rates.
Portugal’s fiscal stance is still expected to be expansionary in 2026, before becoming contractionary in 2027 as PRR funds decline.
The end of the PRR cycle is visible in investment forecasts, with Portuguese investment expected to grow 3.9% in 2026 before slowing sharply to 1.6% in 2027.
That contrasts with the eurozone average, where investment is forecast to remain more stable at 1.8% in 2026 and 1.7% in 2027, and with the European Union average of 2.2% and 2% respectively.
Across the European Union, public deficits are expected to rise from 3.1% of GDP in 2025 to 3.6% this year, reflecting weak economic activity, higher interest spending, support measures for vulnerable households and companies facing higher energy prices, and increased defence expenditure.
Portugal remains in a stronger fiscal position than most European partners, especially on public debt.
The Commission expects the Portuguese debt ratio to continue falling, although more slowly, reaching 86.7% of GDP in 2026 and 86.0% in 2027.
Brussels says that decline is based on continued primary surpluses and favourable differences between interest rates and growth rates.
The trend contrasts with the European Union, where debt is expected to rise to 84.2% of GDP in 2026 and 85.3% in 2027.
In the eurozone, debt is forecast to increase to 90.2% of GDP in 2026 and 91.2% in 2027.
The Commission expects four European Union member states to have debt ratios above 100% of GDP next year.