Portugal now sees economy contracting by two percent in 2013

The Portuguese government on Wednesday said the contraction in economic output this year would be double the government’s initial forecast of one percent of GDP, adding that the administration of Prime Minister Pedro Passos Coelho would seek more time from Brussels to meet its deficit-reduction obligation.

Speaking in parliament, Finance Minister Vítor Gaspar announced a downward revision in the government’s forecast for GDP in the order of one percentage point, explaining that the downturn in the economy at the end of last year would have a negative impact on activity this year. The government’s revised forecast brings it in line with that of the Bank of Portugal, which at the start of this year predicted activity would shrink by 1.9 percent.

Portugal is locked in its deepest recession since the 1970s. GDP shrank 1.8 percent on a quarterly basis in the fourth quarter of 2012 after a contraction of 0.9 percent in the previous three months. The economy has now declined for nine quarters in a row. On a year-on-year basis, the fall in output accelerated to 3.8 percent from 3.5 percent in the third quarter.

For the whole of last year, the contraction in the economy doubled to 3.2 percent from 1.6 percent.

The downturn has caused unemployment to rise sharply, with the jobless rate ending last year at a euro-era record 16.9 percent.

Gaspar said he expected the European Commission to give Portugal another year to bring its public deficit back within the European Union ceiling of 3 percent of GDP. Lisbon’s current commitment is to achieve a shortfall of 2.5 percent of GDP in 2014.

“It is reasonable to predict that the European Commission will […] extend by another year the timetable set for Portugal to correct its excessive deficit,” Gaspar told parliament.