The Socialist Party (PS) government, led by the prime minister, Jose Socrates, will continue to make some progress with implementing a wide-ranging reform programme designed to raise growth prospects and reduce fiscal and external deficits, although the approach of a general election in 2009 may reduce the government's will to take unpopular measures. The Economist Intelligence Unit nevertheless expects the government to meet the target of a deficit of less than 3% of GDP in 2008 agreed with the European Commission. We estimate that real GDP growth will have accelerated from 1.3% in 2006 to 1.8% in 2007. We forecast a further modest acceleration to 2% in 2008 and to 2.2% in 2009, underpinned by strengthening domestic demand. The current-account deficit is forecast to narrow to around 6.1% of GDP by end-2009.