Portugal slips deeper into recession in Q3

LISBON (Reuters) – Portugal‘s economy shrank a greater than initially reported 0.6 percent in the third quarter, slipping deeper into recession as austerity and financing problems weighed amid the debt crisis while export growth slowed.
Austerity measures under Portugal’s 78 billion euro bailout agreed with the European Union and the IMF in May are expected to lead to the deepest recession since the country returned to democracy in 1974. The government projects the economy will contract 1.6 percent this year and 3 percent in 2012.
The National Statistics Institute‘s second reading of GDP on Friday showed a sharper quarter-on-quarter contraction than the flash estimate of minus 0.4 percent.
GDP contracted by 0.2 percent in the second quarter and 0.6 percent in the first quarter of this year, INE said.
“The reduction of economic activity is still more of a reflection of difficulties with the financing of the economy rather than the impact of austerity … which means the recession will continue to worsen in the quarters to come when austerity measures fully kick in,” said Filipe Garcia, head of Informacao de Mercados Financeiros economic consultants.
INE said that year-on-year GDP fell 1.7 percent, the same as in its flash estimate, after a contraction of 1 percent in the previous quarter.
Parliament approved last week a tough 2012 budget that suspends holiday and year-end bonuses for civil servants and hikes many taxes further.
The INE said internal demand, which has already suffered from higher taxes and pay cuts imposed this year, dropped 0.6 percent from the previous quarter as both investment and public consumption ebbed.
Compared with a year ago, internal demand fell a steep 4.6 percent, with private consumption down 3.3 percent and investment slumping by 13.7 percent.
Exports rose just 2.7 percent from the previous quarter, their positive impact neutralised by a 2.4 percent increase in imports. Export growth also decelerated to 6.5 percent year-on-year from 8.7 percent in the second quarter.
Nevertheless, another batch of INE data on Friday showed exports growing faster in the three months through October than in the third quarter, with Portugal’s trade gap falling a steep 30 percent from a year earlier.
The government is hoping a recovery may begin by late 2012 mainly on exports, although many economists warn Europe’s economic slowdown would make it much more difficult for Portugal to return to growth and meet its 2012 budget deficit target under the bailout. It has to slash the gap to 4.5 percent next year from this year’s projected 5.9 percent.
(Reporting By Andrei Khalip and Sergio Goncalves)

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