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Portuguese Economy Contracts for an Eighth Straight Quarter

Portuguese Economy Contracts for an Eighth Straight Quarter
A pedestrian passes the graffiti-daubed shutters of a closed jewelry store in Lisbon. Photographer: Mario Proenca/Bloomberg

Portugal’s economy shrank for an eighth quarter and unemployment rose to a euro-era record as the government implemented austerity measures in an attempt to rein in its budget deficit and curb debt.

Gross domestic product declined 0.8 percent in the third quarter from the second quarter, when it fell 1.1 percent, the National Statistics Institute said in a preliminary report today. Economists projected a decrease of 0.6 percent, the median of nine estimates in a Bloomberg survey showed. The jobless rate rose to 15.8 percent in the three months through September from 15 percent in the second quarter, the Lisbon-based statistics institute said in a separate statement.

Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($99 billion) aid plan from the European Union and the International Monetary Fund. The government already has been given more time to narrow its budget shortfall after tax revenue missed forecasts.

“Portugal is suffering from a milder strain of the Greek disease,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Even after the troika cut the government some fiscal slack, the outlook for GDP is extremely bleak. The credibility of the government’s fiscal consolidation program risks being undermined by the severity of the downturn.”

‘Recovering Our Life’

GDP fell 3.4 percent from a year earlier, the biggest annual decline since the second quarter of 2009, as export growth slowed, the report showed. Greece’s economy shrank 7.2 percent in the third quarter of 2012 compared with the same period a year earlier, the Hellenic Statistical Authority said in a separate report today.

“We know that overcoming this situation depends largely on ourselves,” Passos Coelho said today in a speech broadcast by television channel SIC Noticias as he visited a factory of Sicasal SA, a maker of sausages and other meat products, outside Lisbon. “We are not carrying out an adjustment process that is very difficult to show that we are obedient, but because that is the way of recovering our life.”

The Portuguese government aims to reach a budget deficit of 5 percent of GDP in 2012 and 4.5 percent in 2013. It will only cut the deficit below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap.

‘Enormous’ Increase

Finance Minister Vitor Gaspar on Oct. 3 said the government plans to implement an “enormous” increase in taxes on wages and other income to meet deficit targets in 2013, when the economy is set to contract for a third year. The government projects GDP will fall 1 percent in 2013 after dropping 3 percent this year.

Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers. The government predicts the unemployment rate will rise to 16.4 percent in 2013 from 15.5 percent this year.

Labor group CGTP is holding a strike today to protest against the government’s austerity measures. State-owned airline TAP SGPS SA has canceled some flights and Lisbon’s metro service is shut.

The number of unemployed workers from industries including manufacturing, construction and energy rose 24.3 percent in the third quarter from a year earlier, while the increase from services was 28.4 percent, the statistics institute said today.

Auto Industry

Portuguese light-vehicle sales fell 41 percent in the 10 months through October compared with the same period in 2011, the Portuguese Automobile Association said on Nov. 5. An estimated 2,600 companies in the auto industry may close this year, representing a loss of 21,000 jobs, according to ACAP.

Brisa-Auto Estradas de Portugal SA, Portugal’s biggest highway operator, said on Oct. 31 that toll revenue declined 9.8 percent in the first nine months of the year.

Banco Comercial Portugues SA, Portugal’s second-largest bank by market value, on Nov. 5 said it plans to cut 600 jobs after posting a nine-month loss of 796 million euros due to impairment charges.

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