–Adds Comment Noting Dependence Of Portuguese Banks On ECB Funding
LISBON (MNI) – The Bank of Portugal on Thursday revised up its
projection for Portugal’s GDP growth this year to +1.2% from +0.9%
expected in July but trimmed its forecast for 2011 to flat from +0.2%.
Fiscal consolidation measures taken by the government will have a
contractionary impact on economic activity in the short term, the
central bank said in its quarterly Economic Bulletin.
This year’s improved economic prospects stem from stronger private
and public consumption than expected in July. Private consumption is now
seen growing by 1.8% vs 1.3%, while public consumption is seen rising
1.5% vs down 0.9%. This would offset weaker fixed investment and a
smaller boost from foreign trade.
Next year, investment is now seen falling 3.2% vs -1.6% expected
previously. The downturn in private consumption would be slightly less
pronounced at 0.8% vs 0.9%.
The bank also warned that without “significant temporary measures,”
the country’s public deficit this year will be “clearly above the
objective initially outlined.”
It noted that in the Portuguese economy, “the pressure to adjust
will fall on all sectors of the economy simultaneously, generating a
severe and inescapable contractionary dynamic.”
The Bank of Portugal acknowledged that the ECB has been and
continues to be a liquidity lifeline to Portuguese banks hard hit by the
sovereign crisis.
Amid the crisis, and “given the temporary nature of the
non-conventional political measures of the euro system — which has
ensured the external financing of the Portuguese economy — the
unavoidable process of economic adjustment will tend to intensify from
the second half of 2010,” the central bank said.
Austerity measures announced last week, along with others that
might be needed will benefit the economy in the medium and long term,
but they will have a “contractionary impact in the short term, the Bank
of Portugal said.
[TOPICS: M$$EC$,M$X$$$,MT$$$$]