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LISBON, March 26 (Reuters) - Portugal's central bank on Wednesday upgraded its economic outlook for 2014, when Lisbon is to exit its bailout, and beyond, predicting a gradual recovery in consumption and investment stoking growth through 2016.
Moreover, in an improvement from its previous forecast in December when it still warned of mostly downside risks, the Bank of Portugal now sees balanced overall risks to the economy with some potential for positive surprises at home.
The banks sees the economy growing 1.2 percent this year, up from 0.8 percent in its previous forecast and in line with last month's government estimates. It also upped next year's growth outlook slightly to 1.4 percent from 1.3 percent and predicted an expansion of 1.7 percent in 2016.
"The projection for 2014-2016 points to a gradual recovery of the Portuguese economy, with an expected pace of growth similar to that projected for the euro zone," the bank said in its economic forecast update.
Last year, Portugal's economy started to recover from its worst recession since the 1970s, but the economy still shrank 1.4 percent for all of 2013.
"The projection envisages balanced risks to the economic activity, with identified downside risks externally and internal risks that are generally upward for activity," the bank said.
On the domestic front, it said structural reforms implemented under the bailout could produce a stronger beneficial effect on productivity, consumption and disposable income than currently envisaged.
But outside risks of a more moderate global economic recovery could diminish the projection of continued robust growth in exports.
The bank expects exports to grow 5.3 percent this year, 5.1 percent in 2015 and 5.4 percent in 2015, slightly lower than under its previous outlook.
Private consumption, in its turn, is expected to rise 1.3 percent this year, much higher than its previous projection of 0.3 percent, then 1.1 percent in 2015 and 1.2 percent in 2016. (Reporting By Andrei Khalip, editing by Axel Bugge)