Bank of Portugal Lowers 2014 Growth Forecast on Budget Cuts

Portugal’s economy will grow less than previously forecast in 2014 when the government plans to implement new spending cuts, the country’s central bank said.

Gross domestic product will expand 0.3 percent in 2014 after declining 2 percent in 2013, the Lisbon-based Bank of Portugal said today in its summer economic bulletin. In March, the central bank forecast a contraction of 2.3 percent for 2013 and growth of 1.1 percent in 2014.

“In a context of high uncertainty, the risks associated with the projection for economic activity are balanced for 2013 and on the downside for 2014,” the central bank said in a statement.

Prime Minister Pedro Passos Coelho is battling rising joblessness as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($102 billion) aid plan from the European Union and the International Monetary Fund. Coelho announced measures on May 3 intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers.

Government ministries will have to reduce spending on purchases of goods and services by at least 10 percent next year, Coelho said in May.

Export Growth

The central bank forecasts investment will drop 8.9 percent in 2013 and rise 1.1 percent in 2014, while private consumption will decline 3.4 percent and 1.4 percent, respectively. It projects inflation of 0.4 percent for this year and 0.8 percent in 2014.

Export growth will accelerate to 5.5 percent in 2014 from 4.7 percent in 2013. The trade surplus is forecast to widen to 4.9 percent of GDP in 2014 from 3 percent in 2013 and from 0.1 percent last year, which was the first surplus in the balance of goods and services in at least 60 years, according to the Bank of Portugal. It predicts a current and capital-account surplus of 4.5 percent of GDP in 2013 and 6.4 percent in 2014.

Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers. The government projects GDP will contract 2.3 percent this year before growing 0.6 percent next year while the jobless rate will climb to 18.2 percent in 2013 and 18.5 percent in 2014.

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