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Portugal to contract 2.3% in 2013, says central bank

The Portuguese economy is set to contract by 2.3 percent this year due to a sharp fall in domestic demand and disappointing export growth, the Bank of Portugal said on Tuesday.

With the new forecast, which predicts a deeper contraction than an earlier estimate of 1.9 percent, Portugal is now in line with estimations made by Lisbon’s creditors, the European Union (EU) and the International Monetary Fund (IMF).

The central bank outlook expected Portugal’s economy to grow by 1.1 percent in 2014 despite headwinds caused by new austerity measures necessary to stay in line with the country’s 78-billion euro ($100 billion) bailout programme, negotiated in May 2011.

With recession deepening, Portugal this month won an extra year from creditors to bring its public deficit into line with EU limits, as it faces record unemployment and mounting social discontent.

Portugal, suffering its worst recession in 40 years, now has until 2015 to bring the deficit below 3.0 percent of gross domestic product (GDP).

Eurozone countries are obliged to run public deficits of no more than 3.0 percent of output, and are supposed to work towards a balanced budget, and even a surplus in times of economic growth.

Portugal’s troika of public creditors, the EU, IMF and the European Central Bank, gave the extra leeway as they approved an eighth payment of emergency aid to the country as part of the programme.