PARIS (MNI) – The Portuguese economy will contract this year more
sharply than previously expected, as slowing export growth fails to
offset sharply plummeting domestic demand and investment, the Bank of
Portugal said in its winter Economic Bulletin published Tuesday.

The central bank noted that domestic demand, both public and
private, were being hit hard by government budget cuts required to slash
Portugal’s public deficit and debt, leading to an “unprecedented
contraction in economic activity.”

The bank now forecasts Portugal’s GDP to shrink this year by 3.1%,
a sharp downward revision from the -2.2% it had projected in the fall.
In 2013, the economy is expected to return to growth, but just barely,
with an increase of 0.3% expected.

The Bank of Portugal said its downward revision to the 2012 growth
forecast was due primarily to two factors: extra budget cutting measures
enacted towards the end of last year after it became clear the
government was missing its deficit targets and to less buoyant foreign
demand than had been expected.

The central bank now expects Portuguese exports to grow by 4.1% in
2012, down from the 4.8% rate it had forecast in the fall. That
represents a significant loss of momentum from last year, when exports
grew 7.3%, according to the central bank’s estimates.

That is why exports, which constitute the only engine of growth in
the economy, are “not sufficient to compensate for the impact on
domestic demand of deleveraging in the private sector and of fiscal
consolidation,” the bank wrote.

That deleveraging is having an extremely heavy impact on domestic
activity. Total domestic demand is expected to drop 6.5% this year after
5.2% in 2011. Investment is expected to fall off a cliff for a second
consecutive year, plunging 12.8% after a drop of 11.2% last year, the
bank projected.


–Paris newsroom, +331-42-71-55-40;

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