Bank of Portugal predicts GDP slide in 2012

LISBON – Portugal’s economy faces “virtual stagnation” in 2013 after a deep contraction of 3.1% this year, the nation’s central bank said on Tuesday, after austerity imposed by an EU/IMF bailout triggered an unprecedented fall in private consumption.

In its quarterly economic bulletin, the bank also did not rule out that the debt-laden country may need to take additional measures to meet its bailout target of a 4.5% of GDP budget deficit this year.

It revised this year’s gross domestic product forecast from a more gentle 2.2% drop predicted in October. It also revised its estimate for last year’s GDP decline to a slightly less painful 1.6% from its previous estimate of 1.9%, on stronger than expected exports.

The new 2011 and 2012 estimates are in line with recent government forecasts, implying the deepest recession in Portugal since the chaotic return of democracy in 1974. Portugal’s weak economy and relatively heavy debt burden forced it to seek a European Union/International Monetary Fund bailout in 2011.

Next year, the Bank of Portugal expects the economy to grow just 0.3%. The government has previously said it expects a recovery to begin towards the end of 2012, expecting as yet unspecified modest growth in 2013.

“The risks surrounding this projection for the economy are clearly downward as a less dynamic world economic growth would have an impact on exports, and possible additional budget consolidation measures would affect internal demand via direct impact on the incomes of households,” the document said.

It added that last year’s one-off transfer of nearly 6 billion euros ($7.6 billion) from banks’ pension funds to state coffers, which allowed the country to meet its 2011 deficit target, would have a reverse effect in the future, implying additional social spending.

The bank said it expected export growth to slow to 4.1% this year from last year’s estimated 7.3%, but then pick up steam again in 2013 to grow 5.8% growth.

But internal demand is expected to contract by 6.5% this year — more than the bank’s previous forecast of 4.8% — following last year’s 5.2% drop. Next year, internal demand is still seen contracting 1.5%.

© Thomson Reuters 2012

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