Bank of Portugal Forecasts Deeper GDP Contraction This Year

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

Gross domestic product will shrink 1.9 percent in 2013 after declining an estimated 3 percent in 2012, the Lisbon-based Bank of Portugal said today in its winter economic bulletin. In November, the bank forecast a contraction of 1.6 percent for 2013. It projects growth of 1.3 percent in 2014.

“The outlook for the Portuguese economy in 2013 and 2014 continues to be marked by the process of adjustment of the structural macroeconomic imbalances, including the short-run impact of fiscal consolidation measures, as well as tight financing conditions,” the central bank said in a 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 ($104 billion) aid plan from the European Union and the International Monetary Fund. Portugal has already been given more time to narrow its budget shortfall after tax revenue missed forecasts.

The bank forecasts investment will drop 8.5 percent in 2013 and rise 2.8 percent next year, while private consumption will decline 3.6 percent and grow 0.1 percent, respectively. It projects inflation of 0.9 percent this year and 1 percent in 2014.

Imports will drop 3.4 percent in 2013 while exports will rise 2 percent, slowing from estimated growth of 4.1 percent in 2012.

‘Rapid Adjustment’

“The change in the composition of aggregate expenditure has resulted in a rapid adjustment of the net external borrowing requirements of the Portuguese economy,” the central bank said.

Portugal will post a current- and capital-account surplus of 3.1 percent in 2013 after deficits of 0.1 percent in 2012 and 9.4 in 2010, according to the Bank of Portugal. The trade balance is forecast to increase to 3.1 percent in 2013 from an estimated 0.3 percent last year. If that estimate is confirmed, it would be the first surplus of the balance of goods and services in at least 60 years, according to the Bank of Portugal.

Portugal’s economic growth has averaged less than 1 percent a year for the past decade, placing it among Europe’s weakest performers. The government projects GDP will shrink 1 percent in 2013 after contracting an estimated 3 percent in 2012.

The Portuguese government on Nov. 19 said it forecasts debt will peak at 122.3 percent of GDP in 2014 after reaching 122.2 percent in 2013. It aims for a budget deficit of 4.5 percent in 2013 and will only narrow the shortfall below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap.

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