Portugal’s GDP to Contract for a Third Year in 2013, OECD Says

The Portuguese economy will contract for a third year in 2013 as domestic demand drops, the Organization for Economic Cooperation and Development said.

Gross domestic product will shrink 3.2 percent this year and 0.9 percent in 2013, the Paris-based OECD forecast in an economic survey released today. The government estimates GDP will grow 0.2 percent in 2013 after contracting 3 percent this year.

Prime Minister Pedro Passos Coelho is facing a recession and rising unemployment as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($95 billion) aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal last year followed Greece and Ireland in seeking a bailout and now aims to return to bond markets in 2013.

“The size of the consolidation in 2012 is very large and the risk that fiscal targets are not met because growth undershoots expectations in a credit constrained and weak international environment is significant,” the OECD said. “Therefore, the government faces additional challenges to regain full market access within the program period.”

Portugal targets a budget deficit of 4.5 percent of GDP in 2012 and 3 percent in 2013. Portuguese economic growth has averaged less than 1 percent a year for the past decade, placing it among Europe’s weakest performers.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net