(Updates with comment from statistics institute in fourth paragraph. See EXT4 for more on the sovereign-debt crisis.)
Feb. 14 (Bloomberg) -- Portugal’s economy shrank for a fifth quarter in the three months through December as the government cut spending and raised taxes to trim its budget gap.
Gross domestic product declined 1.3 percent from the third quarter, when it fell 0.6 percent, the Lisbon-based National Statistics Institute said in a preliminary report today. It was the biggest quarterly drop since the first quarter of 2009. Economists predicted a fall of 1.5 percent, the median of eight estimates in a Bloomberg News survey showed.
GDP declined 2.7 percent in the fourth quarter from a year earlier. The economy shrank 1.5 percent in 2011 after expanding 1.4 percent in 2010, according to today’s report.
“The sharper reduction in GDP in the fourth quarter reflected a significant worsening of the negative contribution of internal demand, associated particularly to the declines in investment and household consumer spending,” the statistics institute said today.
Prime Minister Pedro Passos Coelho is facing a recession as he cuts spending and increases taxes to meet the terms of a 78 billion-euro ($103 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.
Portugal’s economy will contract more than previously forecast in 2012 as the government cuts investment and consumer spending drops, the central bank said on Jan. 10. GDP will fall 3.1 percent this year and expand 0.3 percent in 2013, the Bank of Portugal predicted.
The economy will shrink 3 percent in 2012, the European Commission forecast on Nov. 10. Portuguese economic growth has averaged less than 1 percent a year for the past decade, placing it among Europe’s weakest performers.
Mota-Engil SGPS SA, Portugal’s biggest construction company, plans to counter a recession at home by expanding abroad, Chief Executive Jorge Coelho said earlier this month. About 10 building firms file for bankruptcy every day, according to Portuguese construction industry group AICCOPN.
Portuguese light-vehicle sales fell 30 percent in 2011 from a year earlier, the Portuguese Automobile Association said on Jan. 2. SAG Gest-Solucoes Automovel Globais SGPS SA’s Siva unit, the Portuguese importer of Volkswagen AG cars, sold 21 percent less light vehicles last year than in 2010.
Portugal narrowed its budget deficit to about 4 percent of GDP in 2011 following the transfer of banks’ pension funds to the state. The government expects the shortfall will reach 4.5 percent in 2012 and 3 percent in 2013, the EU’s ceiling, after hitting 9.8 percent in 2010.
Portuguese government debt is projected to “stabilize” at 112 percent of GDP in 2013, after reaching 111 percent in 2012 and 101.6 percent last year, the European Commission forecast in November. Debt was 93.3 percent of GDP in 2010.
--Editors: Jeffrey Donovan, Simone Meier
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