UPDATE 1-Portugal PM confident will see growth in 2014

Wed Jan 30, 2013 8:38am EST

LISBON Jan 30 (Reuters) - Portugal's economic decline will be smaller this year than last and the bailed out country looks set to return to growth next year, Prime Minister Pedro Passos Coelho said on Wednesday.

"All forecasts point in one direction, that in 2014 the Portuguese economy will recover in terms of growth and that throughout 2013 a turnaround in the recessive trend will occur," he told reporters.

Signs that Portugal and Ireland are slowly escaping the throes of a debt crisis that has gripped Europe for three years are another leg of the cautious optimism that has gripped financial markets at the start of 2013.

Its economy, however, continues to struggle with the broad fall off in demand across the euro zone and the impact of budget cuts aimed at stabilising public finances.

The Portuguese government expects the economy to shrink 1 percent this year after last year's estimated 3 percent slide, but the Bank of Portugal has forecast a much steeper contraction of 1.9 percent this year while Citi economists expect a drop of as much as 3.7 percent.

Some economists, including at ratings agency Fitch, argue Lisbon could still need a second rescue programme due to that economic fragility.

Passos Coelho said financing needs for 2013 were covered by its EU and IMF bailout and a recent tentative return to bond market operations. He said the country was in no rush to issue more bonds while it was moving closer to concluding the bailout programme as planned in mid-2014.

"We have no financing problems in 2013, we have our financing needs covered so there is no hurry from this point of view to go to the markets.

"We have to take advantage of good opportunities where by going to the markets we can prepare a calm transition to a lasting market financing and at the same time transfer lower yields to banks and companies," he said.

His finance minister, Vitor Gaspar, echoed those words, although he said he would seize opportunities to issue bonds if market conditions were favourable.

Last week, Portugal issued its first bond since it was bailed out in mid-2011, selling 2.5 billion euros of five-year bonds. The bonds have fallen in value since the sale, suggesting investors' so far ravenous appetite for higher-risk euro zone sovereign bonds may have been sated for now.

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