Portugal: GDP shrinks in third quarter on spending cuts
December 9, 2011
In the third quarter, GDP fell a seasonally adjusted 0.6% over the previous quarter, according to the National Statistics Office (INE, Instituto Nacional de Estadistica). The reading was below both the 0.4% drop released in the 14 November flash estimate and the 0.2% contraction seen in the second quarter. On an annual basis, the economy contracted 1.7% over the same quarter the year before, unchanged from the flash estimate. The contraction in the third quarter was mainly driven by a marked deterioration in the external sector, while domestic demand, albeit remaining subdued, improved marginally (Q2: -1.1% quarter-on-quarter; Q3: -0.6% qoq). Final consumption slipped (Q2: +0.3% qoq; Q3: -0.4% qoq) as the meagre gain of 0.1% in private consumption (Q2: -0.4% qoq) was totally offset by an outright contraction in government consumption (Q2: +2.4% qoq; Q3: -1.8% qoq). Public spending contracted sharply due to government efforts to meet the fiscal budget targets set under the IMF/EU bailout. Meanwhile, fixed investment declined at a slower pace in the third quarter (Q2: -6.0% qoq; Q3: -2.8% qoq). The external sector, which has been the main source of economic growth in past quarters, slowed notably as demand for exports among European trading partners dwindled. Shipments of goods and services moderated compared to the previous quarter, expanding 2.7% (Q2: +4.1% qoq), while imports accelerated to 2.4% (Q2: +1.1% qoq). As a result, the external sector's net contribution to overall economic growth was nil in the third quarter, down from a contribution of plus 0.9 percentage points in the second .