* Finmin says only sees economic recovery in 2013
* 'Contagion' threat reduced after EU summit
(Updates with quotes, details)
LISBON, July 25 Last week's EU summit that gave a new lifeline to Greece was favourable for Portugal, but the country cannot soften its austerity drive under a 78 billion euro bailout, Finance Minister Vitor Gaspar said on Monday.
He told a banking conference the summit reduced the chances of the Iberian country getting caught up in debt crisis contagion and allows for better market access while Portugal faces at least nine consecutive quarters of economic contraction with growth only expected to return in early 2013.
He said that the bailout programme was essential to reduce the budget deficit and ultimately achieve growth and that it would be "irresponsible to think of softening the adjustment programme".
The government expects the economy to contract by 2.3 percent this year and 1.7 percent next year under austerity included in the bailout plan.
Gaspar said the euro zone summit last week in Brussels was positive as it agreed on a new bailout for Greece and reduced the interest rate on the bailout terms for Portugal and Ireland.
"The result of the summit was favourable," he said. "Mainly, by reducing the probability of contagion. Secondly, it will have a positive impact by improved financing conditions helping the sustainability of Portuguese public accounts."
Portugal became the third country in the euro zone to seek a bailout this year after the previous minority Socialist government failed to pass austerity measures in parliament, causing its collapse.
Under Portugal's bailout plan, the country needs to cut its budget deficit to 5.9 percent of gross domestic product this year from 9.2 percent in 2010.
The government is enacting sweeping tax hikes and spending cuts and has started an economic reform programme including steps on the labour market. (Reporting by Sergio Goncalves and Shrikesh Laxmidas; Writing by Andrei Khalip; Editing by Hugh Lawson)