PARIS (MNI) – The extra budget cutting and private sector
deleveraging needed to put the Portuguese economy back on a sustainable
long-term path will cause a sharp drop in economic activity and
employment over the medium term, the Bank of Portugal said in its Summer
Economic Bulletin, published early Tuesday morning.
The central bank sharply downgraded its forecasts for GDP growth,
private consumption and business investment, compared with previous
forecasts published in the spring. The new austerity measures required
to secure a E78 billion bailout package in May from its European
partners and the International Monetary Fund are largely to blame for
the darkening picture, the bank suggested.
“The need to reinforce the consolidation of public finances, as
well as a gradual deleveraging of the private sector, including the
financial system, is essential to ensure balanced and sustainable
long-term development,” the bank wrote. However, “the correction of
macroeconomic imbalances will continue to imply across the forecast
horizon (ie, 2011-2012) a significant contraction of internal demand,
with an impact on the level of economic activity and employment.”
The central bank forecast a GDP contraction of 2.0% this year,
representing a considerable deterioration in the outlook compared with
the -1.4% it had projected in the spring. For 2012, the Bank of Portugal
sees the recession loosening its grip only slightly, with GDP shrinking
1.8%. This compares with a previous forecast of +0.3%, showing how much
worse things are looking now than a few short months ago.
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–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com
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