BRUSSELS (MNI) – Portugal’s economy is likely to contract by 3.25%
this year, but the country’s overall performance under its E78 billion
bailout remains on track, official lenders said on Tuesday.

The report from the troika — the European Commission, the IMF and
the European Central Bank — follows the third review in February of
Portugal’s program. The successful review should allow the disbursement
of E14.9 billion in aid in April and May from the EU and the IMF, the
report said.

Portugal’s economic outlook has deteriorated amid sharply rising
unemployment, record low business confidence and a slowdown in export
growth, the troika report said. While the economy is expected to return
to growth next year, the expansion “will also be more shallow than
expected originally,” the report said.

Investors have been focused on whether Portugal’s economic
adjustment will be rapid enough for it return to the markets by
September 2013, when it has E9.7 billion in debt maturing. A European
Commission spokesman said in a briefing here that Portugal was expected
to regain market access in 2014, suggesting that official lenders will
have to come up with more aid than planned.

A Commission spokesman said there has been no talk of Portugal
delaying that bond redemption payment.

The troika report said that while Portugal resorted to one-off
measures to reach its 2011 deficit target of 5.9%, its deficit target of
4.5% for this year “remains valid.”

Important challenges remain to Portugal’s program, however, the
troika report said. These include a larger than expected increase in
unemployment, the debt overhang from state-owned companies, and the need
to implement restructuring measures rapidly.

“In view of the pressing need to unleash the economy’s growth
potential, policy slippage cannot be afforded,” the report said. “It is
crucial that the government ensures that there are no delays in the
implementation of the ambitious reforms in labour, product and services
markets.”

–Paris newsroom; +33142715540; jduffy@marketnews.com;
–Brussels newsroom, +324-952-2837; pkoh@marketnews.com

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