Portugal: Economy contracts at faster pace in the second quarter
August 16, 2011
In the second quarter, GDP remained unchanged over the previous quarter in seasonally-adjusted terms. The reading came in well above market expectations of a 1.1% contraction as well as the previous quarter's 0.6% decline. On an annual basis, the economy fell 0.9% (Q1: -0.6% year-on-year). According to the National Statistics Office (INE, Instituto Nacional de Estadistica), the annual contraction was mainly driven by a strong decrease in investment and private consumption. Meanwhile, the net contribution from the external sector improved markedly on the back of resilient exports along with diminishing imports. Further details of the national accounts in the second quarter will be unveiled on 8 September. The Portuguese economy defied the impact of the austerity measures adopted in the second quarter. That said, the worst is yet to come, as the toughest austerity measures will be implemented in the second half of the year, when the government enforces the conditions set under the EUR 78 billion rescue package agreed with the European Union (EU) and the International Monetary Fund (IMF) on 16 May. Officials from the European Central Bank and the IMF assessed positively the first steps of the bailout program's implementation. With the positive review, Portugal will receive the next EUR 11.5 billion installment of the loan in September, which will climb to EUR 38 billion by year-end. The Central Bank expects the economy to contract 2.0% this year and 1.8% in 2012, while the government sees GDP declining 2.3% and 1.7% in the same periods.