Portuguese economy expected to contract by 2.0 pct this year

14 July 2011

Lisbon, Portugal, 14 July – The Portuguese economy will this year contract 2.0 percent according to the latest projections from the Bank of Portugal, which lowers the previous forecast of a 1.4 percent contraction.

For 2012, the central bank projects that the Portuguese economy will contract by 1.8 percent, in line with the previous projection.

Consumer spending is expected to drop by 3.8 percent this year, doubling the previous projection, and in 2012 is expected to fall by 3.0 percent, which indicates that both families and companies are anticipating both tax rises and a contraction of disposable income.

Unemployment will continue to rise until the end of 2012, a time when there will be around 100,000 fewer jobs.

Gross Fixed Capital Formation (investment) will contract strongly this year by 5.6 percent and even more in 2012, when the central bank expects it to fall by over 10 percent.

On a more positive note, the report from the Bank of Portugal notes that exports are likely to increase by more than expected by 7.7 percent in 2011 and 6.6 percent in 2012, as compared to previous forecasts of 6 percent this year and 6.5 percent in 2012.

The Bank of Portugal noted that all these projections included the impact of the extraordinary 50 percent tax on anything over the national minimum wage on the so-called “Christmas subsidy.” (macauhub)