Portugal’s gdp to shrink 2% this year, next on added cuts

Portugal’s economy will shrink twice as much as forecast this year as the government implements additional austerity measures to qualify for an international aid package of as much as 78 billion euros ($116 billion).

Gross domestic product will decline 2 percent both in 2011 and 2012, Portuguese Finance Minister Fernando Teixeira dos Santos forecast today at a press conference in Lisbon to announce the bailout agreement with the European Union and the International Monetary Fund. That compares with the government’s March projection that GDP would shrink 0.9 percent this year and expand 0.3 percent in 2012.

Portugal resorted to the EU-led bailout after parliament rejected the government’s latest round of spending cuts and tax increases to tackle the budget deficit, prompting early elections. The budget measures, which include freezing public- sector wages and cuts in pensions and jobless benefits, have sparked protests, with public workers planning another one-day strike tomorrow.

“It’s a big hit,” said Gustavo Bagattini, a European economist at RBC Capital Markets in London. “ These measures will have a very large impact on the domestic economy.”

Source: Bloomberg.com