ECB's Costa urges growth strategy for Portugal

LISBON (Reuters) - Portugal needs a sustainable economic growth strategy as budget consolidation measures alone will not drag it out of its debt crisis, European Central Bank Governing Council member Carlos Costa said on Monday.

Portugal is under pressure to swiftly cut its budget deficit and put its public finances in order, but most economists expect it to have to resort to an international bailout soon as did Ireland and Greece after their borrowing costs spiked.

Costa, who is also Bank of Portugal governor, told a conference the country’s current public debt path was “unsustainable” and required measures to promote growth and create jobs without which the budget consolidation may fail.

“A process confined to budget consolidation and reducing external imbalances without a process of returning the Portuguese economy to the path of sustainable growth is an ephemeral response ... which will make this an episode of a stop-and-go process,” he said.

He said Portuguese companies were overindebted compared to the average European level, which made them vulnerable to high borrowing costs. Costa said they needed to resort more to self-financing and reinforcing their own capital.

The government expects to cut the budget deficit to 4.6 percent of gross domestic product this year from last year’s estimated 7.3 percent, but many economists say the government’s austerity measures are likely to trigger a new recession.

The government, however, hopes that export growth that started last year will continue in 2011 and help avoid a recession. It expects the economy to have grown at least 1.3 percent last year.

Reporting by Shrikesh Laxmidas and Daniel Alvarenga; Writing by Andrei Khalip; Editing by James Dalgleish