“The affirmation reflects the progress made under the IMF-EU programme to date, but rising political, implementation and macroeconomic risks warrant the maintenance of a Negative Outlook,” a Fitch statement said.

It referred to a rescue package worth 78 billion euros ($101 billion) agreed to by Portugal, the International Monetary Fund and the European Union in May 2011.

“Although the programme remains on track, it is going through a delicate phase. Cross-party commitment to its implementation and social cohesion are being tested by the 2013 budget, while institutional constraints could limit the government’s room for manoeuvre,” Fitch said.

German Chancellor Angela Merkel acclaimed Portugal’s austerity cuts in Lisbon on Monday during a visit that was met by furious protesters who draped city monuments in black sheets.

Merkel’s trip coincided with the latest review of Lisbon’s IMF-EU bailout programme, extended on condition the country make vast budget savings to plug a bulging public deficit.

“I sense a great determination to overcome a difficult situation,” Merkel told a joint news conference held with Prime Minister Pedro Passos Coelho.

Fitch forecast that the Portuguese economy, which is already in recession, would contract by another 1.5 percent next year before slowly recovering.

Official Portuguese data suggests that the economy could shrink by 3.0 percent this year with an unemployment rate close to 16.0 percent of the workforce.