Portugal Economic Outlook Lowered as Government Spending Drops

Portugal’s economy will grow less than previously forecast this year as government spending drops, the country’s central bank said.

Gross domestic product will increase 0.9 percent after contracting 1.4 percent last year, the Lisbon-based Bank of Portugal said in a statement today. In June, it forecast expansion of 1.1 percent.

The central bank also projected that government spending will drop 0.7 percent this year, more than the 0.2 percent decline anticipated in June, and said inflation will be zero.

While Portugal emerged from recession in 2013, Prime Minister Pedro Passos Coelho still has to cut spending to meet budget targets after relying mostly on tax increases last year. the nation exited a three-year bailout in May without the safety net of a precautionary credit line.

The budget deficit is forecast to narrow to 4.8 percent of GDP this year from 4.9 percent in 2013, the country’s statistics institute said on Sept. 30. The government wants the shortfall to drop below the European Union’s 3 percent limit in 2015, when it aims for a 2.5 percent gap.

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