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Portugal's economy shrinks for fourth straight quarter

Bailout-imposed austerity drive by Passos Coelho's government continues to undermine output

Portugal's economy shrank for the fourth quarter in a row in the three months to September as the government's austerity drive continued to depress domestic demand, while growth in exports slowed.

According to flash estimates released Monday by the National Statistics Institute (INE), GDP contracted on a quarterly basis in the period July-September after falling by 0.1 percent in the previous three months. The contraction in output in year-on-year terms accelerated to 1.7 percent from 1.0 percent in the second quarter. The INE is due to provide a breakdown of the figures on December 9.

"The more intense reduction in annual terms of GDP in the third quarter was driven by a slowdown in exports of goods and services, which nonetheless continued to post high growth, and by a bigger decrease in investment," the INE said.

The INE said household spending also continued to contract strongly as rising unemployment, higher taxes and public-sector wage cuts eroded purchasing power.

The battery of draconian belt-tightening measures introduced by the government amid strong opposition by the country's labor unions form part of the commitments it undertook in exchange for a 78-billion-euro bailout package from the European Union and the International Monetary Fund.

The rescue program calls for the public deficit to be trimmed from 9.8 percent last year to 5.9 percent this year before it is brought back within the EU ceiling of 3 percent of GDP in 2013.

The government forecasts the economy will shrink by 1.8 percent this year and 2.8 percent next year, compared with the European Commission's estimates of a contraction of 1.9 percent and 3.0 percent, respectively. The administration of Prime Minister Pedro Passos Coelho also predicts the jobless rate will rise to 13.4 percent next year before starting to ease in 2013.

Labor Costs

Separately, the INE said its labor-cost index in the third quarter of the year increased by 1.0 percent from the same period a year earlier when it declined 0.4 percent. The rise was the result of a 1.7-percent increase in average labor costs, while the number of hours worked was up only 0.7 percent.

The biggest increase was in education, where the index climbed 7.8 percent largely as a result of a drop in the number of hours worked. Education was followed by construction, where the index rose 5.8 percent, again mostly due to a drop in working hours. Labor costs in mining and quarrying declined 2.7 percent.

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