Portugal budget predicts worst recession for three decades

The Portuguese government on Monday unveiled a budget for next year that foresees the country suffering its deepest recession in 30 years and heralds further hardship for its already struggling population.

The latest deficit-reduction measures coincided with the main unions proposing a general strike in protest.

The budget unveiled by the center-right government of Prime Minister Pedro Passos Coelho predicted GDP will shrink 2.8 percent next year, the biggest contraction since 1981. Unemployment is expected to rise to 13.4 percent. The Bank of Portugal recently forecast GDP would shrink by 2.2 percent.

In a television address last week, Passos Coelho had flagged some of the additional austerity measures, which include public-sector employees and pensioners earning more than 1,000 euros per month having to forgo their summer and Christmas extra payments.

Just prior to the budget announcement, the CGTP and UGT unions said they had agreed to propose a national stoppage. They have yet to set a date for the proposed strike.

CGTP secretary general Manuel Carvalho da Silva spoke of the "indignation of workers" against the additional belt-tightening, while João Proença of the UGT said the measures would serve only to "aggravate poverty and unemployment," which the government expects to average 12.5 percent this year.

Consumers will also have to fork out 4 percent more for electricity next year if the energy regulator's proposals are passed, while the value-added tax on restaurant meals and pre-cooked food has been increased to 23 percent from 13 percent.

Finance Minister Vítor Gaspar told reporters that the 2012 budget was drawn up on the basis of a shortfall in the one for this year of 3.4 billion eurosinherited from the outgoing Socialist government.

Gaspar said Portugal was in the center of the euro-zone debt crisis, adding that the 2012 budget was one of the "most demanding" ever undertaken. "The moment of truth has arrived," he said.

Portugal is looking to trim its budget deficit to 4.6 percent of GDP next year from 5.9 percent this year under the terms of its 78-billion-euro bailout from the IMF and the European Union. "Not hitting these targets is not an option because of the devastating consequences," Gaspar said.