Bank of Portugal Forecasts Deeper Economic Contraction This Year

Portugal’s economy will contract more than previously forecast this year as private consumption drops and export growth slows, the country’s central bank said.

Gross domestic product will shrink 2.3 percent in 2013 after declining 3.2 percent in 2012, the Lisbon-based Bank of Portugal said today in its Spring economic bulletin. In January, the central bank forecast a contraction of 1.9 percent for 2013. It projects growth of 1.1 percent in 2014.

“This contraction reflects a sharp decline in domestic demand, against a background of lower permanent income prospects,” the central bank said in a statement. “Exports are projected to decelerate, although maintaining a positive growth, despite the deteriorating outlook for external demand.”

Prime Minister Pedro Passos Coelho is battling rising joblessness and lower demand from European trading partners as he raises taxes to meet the terms of a 78 billion-euro ($100 billion) aid plan from the European Union and the International Monetary Fund. The government on March 15 announced wider deficit targets as it forecast the economy will shrink twice as much as previously estimated this year.

The bank forecasts investment will drop 7.1 percent in 2013 and increase 1.9 percent next year, while private consumption will decline 3.8 percent and 0.4 percent, respectively. It projects inflation of 0.7 percent for this year and 1 percent in 2014.

Imports will drop 2.9 percent in 2013 while exports will rise 2.2 percent, slowing from 3.3 percent growth in 2012.

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

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