LISBON As Portugal's government toasts its exit from an international bailout that imposed years of austerity on its citizens, small business owner Alexandra Capelo is in no mood to join the celebrations.
From Lisbon's poorer neighboring city of Almada across the River Tagus, 42-year-old mother of two Capelo is one of the nearly 800,000 people, or 15 percent of the workforce, still unemployed as the country takes back control of its finances.
"Things have gotten worse since last year, business and job-wise," said Capelo, who has relied on a home-based sweets business to supplement her jobless benefits since being laid off as a graphic designer in January.
On Saturday, Portugal becomes the second euro zone state after Ireland to exit a bailout, having stuck to the European Union's recipe of belt-tightening to beat the euro zone crisis.
The 78-billion-euro rescue program the EU and the International Monetary Fund assembled in 2011 for the nearly bankrupt country will formally conclude with Portugal's budget in much better shape and borrowing costs at eight-year lows.
But a shock 0.7 percent drop in its GDP in the first quarter points to the risks inherent in an economic recovery plan which, by focusing on fuelling export growth by cutting labor costs, has become dependent on volatile foreign demand.
That data, released on Thursday, also illustrated how far the country is from a lasting economic recovery.
Portugal's central bank highlighted the challenges, saying progress under the bailout was insufficient, and ensuring sustained growth and getting banks lending again would require further reforms.
But as a government no longer dependent on aid looks anxiously ahead to an election in 2015, these may fail to materialize.
For those who have lost their jobs or seen their pensions or their salaries cut, life in a post-bailout world raises painful questions: Were the reforms worth it and will they ever deliver enough growth for jobs and better living standards?
Further south in the industrial city of Setubal - one of Portugal's poorest and plagued by high unemployment - there is little evidence of the growth that, before stalling, had returned to the country in the second quarter of last year.
"Levels of poverty keeps getting worse, especially among people aged 25-40 who lost their jobs," said Constantino Alves, a priest who runs a "Social Restaurant" charity for the poor.
"We get young couples, parents with children seeking meals and aid. There are various small entrepreneurs who had shops here and are now in utter poverty, eating here. Many have lost all faith to find jobs. It's a crisis of confidence," he said.
The problem, say economists, is that reforms already implemented during three years of wrenching recession and austerity will only have a delayed impact.
"These are political economies that are very difficult to reform. The only way to change is incrementally," said Antonio Barroso, senior vice president at the Teneo Intelligence consultancy in London.
The government has made it cheaper for firms to hire and fire. That has lowered the cost of doing business and helped bring unemployment down from its 2013 peak of 17.5 percent.
But many observers say that because austerity during the bailout focused overwhelmingly on cost-cutting - like public sector wages and pensions - and tax hikes, deeper reforms that would have reduced the size of the state or made the economy even more export-oriented have not taken place.
"The (bailout) adjustment program was basically based on internal devaluation," said Antonio Costa Pinto, political analyst at the University of Lisbon.
That has pleased the creditors. Labor costs in Portugal fell eight percent since 2011 to 11.6 euros per hour in 2013, according to EU statistics agency Eurostat. That brought competitiveness gains, with the value of exports rising to 41 percent of GDP last year.
But the European Commission has said that after wages fell around 5 percent between 2010 and 2013, Portugal is still only half-way to getting pay down to levels that could tangibly reduce unemployment.
"Portugal's challenges remain the same," said Costa Pinto, pointing to the need for further competitiveness gains.
'DESPERATE FOR GROWTH'
That creates a dilemma for a government that will want to give voters some hope before next year's national election.
"This government is looking like it is desperate to go for growth," said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London.
"...It is still a job half done. The danger is that the reforms grind to a screeching halt, there is a very high risk that that happens."
With government bond yields at record lows, market pressure to persist with tough economic reforms has evaporated.
And now that its lenders from the Commission, European Central Bank and IMF have stopped reviewing the economy, the country can change policies more freely, even if still needs to gradually reduce the budget deficit under EU rules.
The government has already said it will partly reverse salary cuts in the public sector in the next few years and it is considering cutting taxes next year.
"I don't think there is an incentive to continue pushing reforms," said Teneo Intelligence's Barroso. "I think the pressure to cut taxes before the election is huge."
Perhaps that will give a push to growth in the short term, but will it help generate the high growth necessary to sharply reduce Portugal's high debts at around 125 percent of GDP? Or to create jobs for those outside the few fast-growing sectors?
Back in Almada, Capelo still hopes thing can improve.
"At least we still have hope that the data will one day transform into real improvements," she said. "I want to try and get a bank credit this year for the business."
But bank loans to firms and individuals are continuing to decline, dropping to 240 billion euros in February, their lowest since 2007, according to the Bank of Portugal.
"Getting loans from banks is the big problem even for companies that have managed to survive. There are no loans, so it's difficult to buy new merchandise, not to mention expand," said Anabela Sharamia, vendor in a furniture shop in Setubal.
(Editing by John Stonestreet)