Bank of Portugal Forecasts Deeper Economic Contraction in 2012
Portugal’s economy will contract more than previously forecast in 2012 as the government cuts investment and consumer spending drops, the central bank said.
Gross domestic product will fall 3.1 percent this year after declining an estimated 1.6 percent in 2011, the Bank of Portugal said today in its winter economic bulletin. In October, the bank forecast GDP would fall 1.9 percent in 2011 and 2.2 percent in 2012. The economy will expand 0.3 percent in 2013, when Portugal will post a current and capital account surplus, the bank predicts.
“There is great uncertainty around these projections, associated to the future evolution of financial tensions on a global scale and in particular to the institutional response to the sovereign debt crisis in the euro area,” the central bank said in a statement in Lisbon.
Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($100 billion) aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout and now plans to return to bond markets in 2013.
The austerity measures are hurting an economy with growth that has averaged less than 1 percent a year in the past decade, one of Europe’s weakest rates.
The Portuguese economy will shrink 3 percent in 2012 and may expand 1.1 percent in 2013, the European Commission forecast on Nov. 10. It would be one of only two countries with declines in GDP in 2012, the other being Greece with a 2.8 percent drop, the commission said. The euro area is forecast to expand 0.5 percent in 2012.
‘Downside’ Risks
The Bank of Portugal said today the risks to its economic projections are “clearly on the downside,” citing the possibility of slower global growth hurting exports and the government adopting additional budget measures that may have an impact on household incomes.
Portugal’s 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,100 euros a month. Tax deductions are being reduced and the government increased the value-added tax rate on some goods. Spending cuts in 2012 represent 4.4 percent of GDP, including reductions on health-care spending, while revenue increases represent 1.7 percent of GDP.
Budget Targets
The government aims to trim the budget deficit from 9.8 percent of GDP in 2010 to the EU ceiling of 3 percent in 2013. Debt is forecast to peak at 106.8 percent of GDP in 2013 before starting to decline, the government said on Aug. 31. Debt was 93.3 percent of GDP in 2010.
The central bank forecasts investment will drop 12.8 percent in 2012 and 1.8 percent next year, while private consumption will decline 6 percent and 1.8 percent, respectively. It projects inflation of 3.2 percent for this year, after an increase in the value-added tax rates of some goods, and of 1 percent in 2013.
Exports (PTTBEUEX) will grow 4.1 percent in 2012 and 5.8 percent in 2013. Portugal’s current and capital account deficit will narrow to 1.6 percent of GDP in 2012 from an estimated 6.8 percent in 2011. It’s forecast to post a current and capital account surplus of 0.8 percent of GDP in 2013, the Bank of Portugal said.
To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net
To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net
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