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EUROPE IN CRISIS

Portugal unveils further austerity measures to cut deficit

Prime Minister Passos Coelho announces rise in employee social security contributions

Portuguese Prime Minister Pedro Passos Coelho on Friday announced yet more austerity measures to rein in the budget deficit to meet the conditions imposed in exchange for a 78-billion-euro bailout package and to get the labor market moving.

The rate of both private and public sector workers' contributions is being raised to 18 percent from 11 percent, while companies will now pay 18 percent instead of 23.75 percent.

Just two days earlier, Passos Coelho said he did not want to overburden Portuguese citizens with new taxes, but added he could not rule this out. President Anibal Cabaco Silva warned that "new sacrifices" would be required by those who had so far been unaffected by the crisis.

Portugal agreed to reduce its public deficit to 4.5 percent of GDP this year but in meetings with officials from the EU, the IMF and the European Central Bank it emerged that the shortfall is estimated to come in at 5.3 percent. The new measures are aimed at reducing that figure to five percent. The economy shrank 3.3 percent in the second quarter. Unemployment is at over 15 percent.

Recession deepens

Portugal's recession deepened in the second quarter of this year as the government's austerity drive depressed domestic demand.

The National Statistics Institute (INE), said Friday that GDP contracted an annual 3.3 percent in the period April-June after falling 2.3 percent in the first three months of the year.

On a quarterly basis, the downturn accelerated to 1.2 percent from 0.1 percent in the first quarter.

"The stronger decline in GDP was driven by a more negative contribution from domestic demand, which shifted from minus 6.4 percentage points in the first quarter of 2012 to minus 7.9 points, particularly reflecting the performance of investment," the INE said.

"The positive contribution of net external demand to the year-on-year rate of change in GDP increased to 4.7 points from 4.1 points in the previous quarter due to a more intense reduction in imports of goods and services, while exports of goods and services decelerated," it added.

The government is forecasting a contraction in activity for the full year of not much over three percent.

The annual decline in spending on investment accelerated to 18.7 percent in the second quarter from 12.8 percent in the first. With unemployment at over 15 percent, household spending fell 5.9 percent, compared with a drop of 5.6 percent in the first quarter.