(Updates with government forecasts in fifth paragraph. See EXT4 for more on the sovereign-debt crisis.)
Nov. 14 (Bloomberg) -- Portugal’s economy shrank for a fourth quarter in the three months through September as the government reduced spending and raised taxes to narrow its budget deficit.
Gross domestic product dropped 0.4 percent from the second quarter, when it fell a revised 0.1 percent, the Lisbon-based National Statistics Institute said in a preliminary report today. Economists predicted a decline of 0.7 percent, the median of six estimates in a Bloomberg survey showed. GDP dropped 1.7 percent from a year earlier.
“The more intense reduction of GDP in annual terms in the third quarter resulted mostly from the deceleration in exports of goods and services and the more significant reduction in investment,” the institute said in an e-mailed statement.
Prime Minister Pedro Passos Coelho is facing a recession as he pares spending and increases taxes to meet the terms of a 78 billion-euro ($107 billion) aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout.
The government forecasts GDP will shrink 2.8 percent in 2012 after a contraction of 1.9 percent this year. The Finance Ministry predicts the unemployment rate will reach 13.4 percent in 2012 before it starts to decline in 2013. Portugal’s economic expansion has averaged less than 1 percent a year for the past decade.
Economy to Contract
Portugal’s economy will shrink 3 percent next year, the European Commission forecast on Nov. 10. It would be one of only two countries with declines in GDP, the other being Greece with a 2.8 percent drop, the commission said. The euro area is forecast to expand 0.5 percent in 2012.
The government aims to trim the budget deficit from 9.8 percent of GDP in 2010 to 5.9 percent in 2011, 4.5 percent in 2012 and to the EU ceiling of 3 percent in 2013. Debt will reach 100.8 percent of GDP this year and peak at 106.8 percent in 2013 before starting to ease, the government predicted on Aug. 31. Debt was 93.3 percent of GDP in 2010.
--Editors: Jennifer M. Freedman, Eddie Buckle
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