The Bank of Portugal on Friday lowered next year's economic growth forecast to 1.2% from 1.5% predicted in October, in a slowdown from this year's projected 2.1% expansion, citing weakening external demand and political uncertainty at home.

In its year-end economic bulletin, the central bank expected the economy to expand by 2.2% in 2025 and by 2.0% in 2026.

It put Portugal's euro area-harmonised inflation at 2.9% in 2024, after 5.3% this year.

The bank said in a statement "the Portuguese economy has stagnated in recent quarters and the short-term outlook is uncertain, with downside risks predominating."

It also forecast a budget surplus of 1.1% of gross domestic product this year, expecting the gap to shrink to 0.1% in 2024. (Reporting by Sergio Goncalves; editing by Andrei Khalip)