Portugal Cuts Forecast for Economic Growth as Euro Area Weakens

Portugal cut its forecast for economic growth as the euro area shows signs of continued weakness after stalling in the second quarter.

The government now sees expansion of 1 percent this year, down from 1.2 percent previously. It sees unemployment averaging 14.2 percent, below the 15.4 percent projected in April. Finance Minister Maria Luis Albuquerque reiterated that the government still plans to meet its budget targets after a court ruling earlier this year blocked some of its austerity measures.

“The euro-area economy is showing signs of slowing down,” she said in Lisbon after the weekly cabinet meeting. “We are using the best information possible to update our expectations.”

The Portuguese government released an amended budget today after a Constitutional Court ruling on its original plans. The court’s May 30 decision blocked the harsher wage cuts for state workers and cuts in illness and unemployment subsidies included in the 2014 budget. As a result, Portugal decided to forgo the final disbursement of its international bailout program, as it wouldn’t have been able to present measures to offset the ruling’s effects in time.

Albuquerque said today that higher-than-forecast tax revenue and some additional spending cuts will be sufficient to meet the budget targets, without resorting to an increase in taxes. In the government’s initial estimates included in the 2014 budget, the economy was expected to grow 0.8 percent.

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