LISBON Feb 15 Portugal's prime minister opened
the door to downgrading the government's 2013 economic forecast
on Friday, a move that could undermine Lisbon's efforts to meet
budget goals under its EU/IMF bailout.
The Portuguese economy shrank much more than expected in the
fourth quarter of 2012, data showed on Thursday, and domestic
demand is expected to be hit this year after the biggest tax
rises in living memory took effect last month.
"The (fourth-quarter) results leave us with a level of
foreign demand that, if extended into 2013, will not allow us to
maintain the projections we have made," Prime Minister Pedro
Passos Coelho told a boisterous session of parliament.
The country is now in its third year of recession, its
worst downturn since the 1970s, as the economy has been hit by
weak demand for exports and sweeping austerity measures imposed
under a 78-billion-euro bailout from the European Union and the
International Monetary Fund.
The government has projected that the economy would contract
1 percent this year but economists expect the slump to be much
deeper and the Bank of Portugal forecasts a 1.9 percent
contraction, mainly on the back of lower demand for Portuguese
At one stage in parliament, Passos Coelho was interrupted as
members of the public in the stands started singing a popular
"Of all the ways to interrupt the session, this was by far
the nicest," Passos Coelho said, smiling.
Lower economic output this year could make it more difficult
for the government to cut its budget deficit to 4.5 percent of
GDP, from 5 percent last year, which could lead to the EU and
IMF demanding more spending reductions as a result.
The economy contracted by 1.8 percent in the fourth quarter
on a quarterly basis, compared with a forecast 1 percent decline
and much worse than a 0.9 percent decline in the previous
Passos Coelho said the larger-than-expected decline was due
to lower exports. Exports had been the only bright spot of the
economy in the past two years.
"We are evaluating the importance of the data we have," he
said. "In the last quarter of 2012 we saw a decline in foreign
demand that was far from our projections."
To successfully exit its bailout programme in mid-2014 as
scheduled Lisbon still needs to convince investors it can cut
its debt and make a full return to bond markets.