Big lenders see Portugal recession easing, MPs say

LISBON Fri May 25, 2012 5:39am EDT

Related Topics

LISBON (Reuters) - Portugal's ruling coalition is reporting that EU and IMF inspectors evaluating the country's bailout programme have concluded the worst of the local recession may be over, which should help a recovery in faltering tax revenues.

European Commission and International Monetary Fund officials contacted by Reuters declined to comment on remarks made by lawmakers from the centre-right coalition who met the mission on Thursday.

"It was said at the meeting that Portugal is overcoming the worst phase at the moment, that it is on the path of leaving the worst point behind," Adolfo Mesquita Nunes of the rightist CDS-PP party told reporters.

Portugal's gross domestic product shrank just 0.1 percent in the first quarter from the previous three-month period when it slumped 1.3 percent, as the economy held up despite deep austerity imposed under the 78-billion euro bailout.

But other problems remain to be tackled. Referring to a rise in core public deficit in January-April to 3.06 billion euros from 2.45 billion a year ago, Mesquita Nunes acknowledged that the budget execution was "below expectations because of a fall in fiscal revenues".

"But that, according to the troika, will be compensated precisely by the good news on the recession front," he said.

While the cumulative core deficit rose 25 percent, the pace of its growth slowed down sharply compared to the gap registered in the first quarter, which had doubled from a year ago.

Social Democrat lawmaker Miguel Frasquilho said the considered the "budget execution to be on a good path". He expected the evaluation, which will continue for another week, to be positive based on what was said at the meeting.

The government still expects the economy to slump about 3 percent this year after last year's 1.6 percent drop, with the recovery expected to begin towards the end of the year.

The Organisation for Economic Co-operation and Development also said earlier this week that Portugal's recession is likely to last longer than expected.

Most investors expect Portugal to need additional bailout funds and more time under the programme before it can return to the bond markets, mostly due to its weak economy.

But Pedro Filipe Soares, a deputy from the Left Bloc who also met the inspectors, said "the theme of a second bailout is a taboo for the troika despite the recession, erosion of tax revenues and rising unemployment".

(Editing by Jeremy Gaunt.)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.