Portugal's economy grew an anaemic 0.2 percent in the second quarter, the same as in the first three months of the year, suggesting the government will struggle to speed up growth this year and putting its fiscal goals in doubt.
Domestic demand was weak despite the Socialist government's drive to reverse austerity measures imposed by the previous administration in the hope of lifting consumption, data from the National Statistics Institute (INE) showed.
In its flash GDP estimate, the INE also said that compared with the same period in 2015, growth slowed slightly to 0.8 percent from 0.9 percent reported in the previous quarter.
"This weak growth sets challenges to budget execution and could lead to the need for fiscally restrictive measures in the second half and in 2017," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto.
Last year, the economy grew 1.5 percent, marking an acceleration from 0.9 percent in 2014, which was the first year of growth after a long recession and debt crisis.
This year, the minority government expects the economy to grow 1.8 percent. But Brussels, the International Monetary Fund and many analysts project a slowdown and warn of the need for additional budget measures to meet its deficit goals.
Prime Minister Antonio Costa has so far adamantly rejected the idea of additional measures and said the country will meet its 2016 budget deficit goal, which has recently been eased to 2.5 percent of GDP, after last year's 4.4 percent.
The European Commission last month cancelled fines for Spain and Portugal over their failure to cut their deficits to within EU limits and gave Lisbon until the end of this year to slash the gap below the 3 percent of GDP European threshold.
The INE said that while exports helped quarter-on-quarter growth, domestic demand had zero impact. In the annual comparison, a slowdown in internal demand and a fall in investment both impacted growth negatively.
"The economy has been losing steam since the middle of last year. The growth model based on the idea of promoting private consumption is showing its limitations," Garcia said, putting this year's growth at no more than 0.9 percent.