Bloomberg News

Portuguese First-Quarter GDP Drops Less Than First Reported

June 09, 2011

(Updates with economist comment in fifth paragraph, domestic spending figures in sixth.)

June 9 (Bloomberg) -- Portugal’s economy contracted 0.6 percent in the first quarter from the previous three months, less than the initial estimate of a 0.7 percent drop.

Gross domestic product declined 0.6 percent from a year earlier, the Lisbon-based National Statistics Institute said today in an e-mailed statement. The initial estimate for the annual decline was 0.7 percent. The figures confirmed Portugal was in recession in the past two quarters for the first time since the second quarter of 2009.

The contraction “reflects an accentuated negative contribution of internal demand, resulting from a reduction in consumer spending of households, and to a lesser degree from a reduction in investment,” the institute said.

Finance Minister Fernando Teixeira dos Santos said May 5 the economy will shrink 2 percent this year, twice as much as previously forecast. The government will implement additional austerity measures after it agreed to an aid package of as much as 78 billion euros ($112 billion) from the European Union and the International Monetary Fund. GDP will also decline 2 percent in 2012, he said.

“Private consumption and government consumption will be increasingly under pressure and net exports might lose some steam should the international growth soft patch be confirmed,” said Paolo Pizzoli, an economist at ING Bank NV in Milan.

Spending Slumps

Domestic spending dropped 3.2 percent in the first quarter from a year earlier after gaining 0.1 percent in the final three months of 2010, with household spending declining 2.1 percent and government spending declining 4.3 percent, according to the statement. Exports rose 8.5 percent from a year earlier and imports declined 0.8 percent.

From the previous quarter, household spending declined 2.7 percent and government spending fell 5.4 percent, the biggest drop since at least 2002. Business investment is at its lowest level since at least 2002.

The government will freeze public workers’ salaries and pensions through 2013 and cut pensions of more than 1,500 euros a month, as part of the plan. Tax deductions will be limited, and the government is aiming to sell its stakes in companies including EDP-Energias de Portugal SA, the biggest electricity provider, and REN-Redes Energeticas Nacionais SA, the operator of the national power grid, by the end of this year.

--With assistance by Jurjen Van de Pol in Amsterdam. Editors: Eddie Buckle, Andrew Atkinson

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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