Bank of Portugal Confirms First-Quarter Economic Decline and Warns Storm Damage Surpasses the 2017 Wildfires

Portugal's economy shrank in the first three months of 2026, the Bank of Portugal's governor confirmed on Monday, as the country continues to reckon with the economic fallout of Storm Kristin — a weather event that, by the central bank's own assessment, inflicted more damage on GDP than the catastrophic wildfires of 2017.

Speaking at a conference in Leiria organised by the local municipality to examine the storm's economic consequences, Governor Álvaro Santos Pereira lifted the veil on the institution's forthcoming Economic Bulletin, due for release on Wednesday: “There was a decline in economic activity in the first quarter,” he said.

Damage That Eclipses Recent Memory

The presentation delivered by the former economy minister laid bare the scale of destruction caused by the depression that swept across the mainland on 28 January and the follow-up storms in February. The Bank of Portugal noted that the storms “caused serious economic losses and may increase credit risk in the banking sector.”

Not even the devastating 2017 wildfires, which killed more than 100 people and wiped out almost one percent of GDP, caused as much economic damage as Storm Kristin, Santos Pereira said — a comparison that underlines how unprecedented the event has been in Portugal's modern economic history.

A Fifth of the Country's Credit Sits in the Damage Zone

The 68 municipalities placed under a state of calamity concentrate a disproportionate share of the country's financial exposure. Based on December data, the Bank of Portugal found that these councils account for:

• 19.3 percent of all business credit — approximately 28 billion euros
• 18.7 percent of total mortgage credit — around 20.8 billion euros, of which 15.8 billion relates to primary residences

Industry holds the largest share of bank loans in the affected territory at 32 percent, well above the 19 percent national average. Commerce represents 22 percent, while construction and real estate account for 13 percent. Agriculture, at 7 percent of local lending, is nearly double its 4 percent national share — reflecting the severe losses declared by the farming sector.

By loan volume, the five most exposed municipalities among the 68 under calamity status are Leiria (8.4 percent), Coimbra (4.4 percent), Torres Vedras (4.2 percent), Aveiro (3.9 percent), and Mafra (3.5 percent).

Banking Activity Collapsed Overnight

The governor presented ATM withdrawal data showing the immediate economic paralysis. On 28 January, the day Kristin made landfall, ATM withdrawals in Leiria dropped 60 percent compared with the average of the previous week. In the Pinhal Interior region, the collapse was even more severe: Sertã fell 87 percent, Ferreira do Zêzere 91 percent, and Vila de Rei recorded zero withdrawals.

By the following Sunday, Leiria had recovered enough to see a 7 percent increase in withdrawals. But the more remote municipalities still showed losses of between 61 and 91 percent, with normal patterns only resuming around 9 February. For days, energy and telecommunications failures left large parts of central Portugal effectively cut off.

The Broader Economic Footprint

The 68 municipalities, less than a quarter of Portugal's 308 councils, are home to 1.8 million people — 17 percent of the population — and cover 22 percent of the national territory. They account for:

• 15.5 percent of exports
• 13 percent of gross value added
• 14 percent of workers
• 15.8 percent of all businesses
• 12.8 percent of tourist accommodation guests
• 19.7 percent of industrial GVA
• 25.6 percent of agricultural output

For businesses, the Bank of Portugal identified two main consequences: destruction of physical assets and disruption to supply chains. For households, the toll has been the destruction of property and a decline in income.

Looking Ahead: Inflation Risk and an Open Question on Recovery

In the short to medium term, the central bank expects inflation to rise, “particularly through food prices,” after widespread crop losses. There is also the risk that some destroyed businesses will not reopen, creating a permanent loss of productive capacity.

On the positive side, the reconstruction effort could drive modernisation of capital stock through replacement equipment, alongside greater investment in prevention and resilience. But the central bank's own presentation left one question for the long term pointedly unanswered: will there be a full recovery?

The full Economic Bulletin, expected on Wednesday, will provide the institution's updated growth and inflation projections for 2026 and beyond. The prime minister has already acknowledged that Portugal may run a budget deficit this year due to the “exceptional” combined impact of storm damage and the Middle East energy crisis.

Related reading: Wildfire Season in Portugal — A 2026 Resident's Safety Guide to the 31 May Cleanup Deadline, the Faixa Rules, and the IPMA Risk Map

Background: See the IC2 traffic restrictions imposed for the Fátima pilgrim flow.