Portugese central bank sees economy shrinking 1.9% in 2013

Portugal’s central bank forecast on Tuesday that the economy will suffer a deeper contraction of 1.9 percent this year owing to austerity measures implemented under its international bailout.

The Bank of Portugal had previously forecast that the country’s economy would contract by 1.6 percent in 2013.

It said “the implementation of the fiscal consolidation measures included in the 2013 State Budget will contribute to a significant drop in disposable income and in domestic demand.”

Portugal has cut spending and raised taxes to cut its public deficit to 5.0 percent of GDP in 2012 and 4.5 percent in 2013 to continue receiving loans under its 78 billion euro bailout from the EU and IMF.

The Bank of Portugal said it expected the contraction to be mitigated by relatively favourable export developments despite a virtual stagnation in external demand, as was the case in 2012.

The central bank forecast a return to growth of 1.3 percent in 2014, based on moderate recovery of domestic demand accompanied by an increase in exports as global economic activity picks up pace.

The Bank of Portugal forecasts the country’s economy contracted by 3.0 percent in 2012.