Portugal in grip of deepest recession since 1975

The Portuguese economy is suffering its worst recession in close to 50 years in 2012 as exports slow and household spending plunges, according to figures released Monday by the National Statistics Institute (INE).

The INE said economic output shrank 3.2 percent in 2012 after a decline of 1.6 percent the previous year. The previous biggest contraction was in 1975, when democracy was restored after the dictatorship of Salazar.

The fall in domestic demand widened to 6.8 percent from 5.8 percent, while the pace of growth in exports slowed to 3.3 percent from 7.2 percent.

The negative contribution of domestic demand increased to 7.0 percentage points from 6.3 points as private consumption fell 5.6 percent, compared with a decline in of 3.8 percent in 2011. The fall in household spending reflected a rise in unemployment to 16.9 percent, a new euro-era high for Portugal, and the impact of the government’s austerity drive, as agreed with the IMF and the European Union in exchange for a 78-billion-euro bailout.

The contribution of net trade – exports minus imports – shrank to 3.9 points last year from 4.7 points in 2011 as the pace of activity in Portugal’s main trading partners slowed.

The downturn accelerated toward the end of last year, with GDP contracting an annual 3.8 percent in the fourth quarter after a decline of 3.5 percent the previous three months. On a quarterly basis, the decline in GDP doubled to 1.8 percent from 0.9 percent in the third quarter.

The Bank of Portugal forecasts GDP will decline 1.9 percent this year. The government initially estimated a decline of 1.0 percent, but later said the fall was likely to be double that amount.