Portuguese recession deepens as economy contracts for fourth consecutive quarter

PORTUGAL’S ECONOMY contracted from July to September for the fourth consecutive quarter, highlighting a deepening recession that the European Union forecasts will be the worst in the 27-nation bloc next year.

Gross domestic product fell 0.4 per cent in the third quarter compared with the previous three months, and was down 1.7 per cent on the same period last year, Lisbon’s National Statistics Institute (INE) said.

INE’s estimate reflects the impact of tough austerity measures as Portugal struggles to meet challenging fiscal targets agreed with the EU and International Monetary Fund in return for a €78 billion financial rescue package. But the economic slowdown in the rest of the EU, which accounts for about 80 per cent of Portugal’s overseas trade, is also affecting Portuguese exports, which the government is promoting as the main source of growth.

According to EU forecasts, Portugal and Greece will be among countries suffering recessions in 2011 and 2012, with Portugal contracting 1.9 per cent this year and 3 per cent in 2012, while Greece contracts 5.5 per cent this year and 2.8 per cent in 2012.

Portugal’s centre-right coalition government, which took office in June, has imposed increasingly tough austerity packages to keep on track with its commitment to reduce the budget deficit from nearly 10 per cent of GDP in 2010 to 3 per cent in 2013.

The government’s budget proposals for 2012 include pay cuts and tax increases that are forecast to reduce the real income of public-sector workers and state pensioners by more than 20 per cent compared with 2010.

EU forecasts suggest the jobless rate will reach a record 13.6 per cent next year.

Trade unions have called a 24-hour general strike on November 24th to protest against the austerity measures as labour unrest increases amid rising unemployment and cuts in welfare. Soldiers and police, wearing civilian clothes, joined anti-austerity protesters in Lisbon last weekend.

The centre-left Socialists, the main opposition party, have called on Portuguese prime minister Pedro Passos Coelho to soften some proposed austerity measures. But the party has said it will abstain on the final parliamentary vote on the budget on November 30th, ensuring that the Bill will pass with a comfortable majority.

Decelerating export growth caused Portugal’s economy to contact at a faster rate in the third quarter than in the previous three months, when GDP fell 1 per cent against the same period in 2010, INE said.

Goods exports remained the strongest component of growth, expanding 13 per cent in the third quarter. This marked a sharp decline compared with growth above 17 per cent in the first six months of 2011.

The trade deficit fell €720 million to €3.76 billion in the year to the end of September. – (Copyright The Financial Times Limited 2011)