Portugal brings recession into EU

The much feared word "recession" crept into the European Union yesterday as Portugal became the first country to be pushed by the downturn across the continent into what appeared to be two successive quarters of economic shrinkage.

The country's statistics office said that GDP shrank year-on-year by 1.3% in the final quarter of 2002 but it revised a negative growth figure for the third quarter to zero growth.

Most analysts, however, thought the revision too optimistic. "In technical terms, Portugal has already entered into a recession," said John dos Santos, an economist with Banif bank.

The centre-right prime minister, Jose Manuel Durao Barroso, whose woes include a yawning budget gap and joblessness at a five-year high, admitted Portugal was facing "a very difficult situation."

"We are very close to stagnation," he said. Mr Durao Barroso blamed the downturn on an international slump, fears of war over Iraq and spending by the previous Socialist administration that breached EU budget deficit limits.

Analysts were even more gloomy about the immediate future. "The latest figures just add to the climate of pessimism," Cristina Casalinho, chief economist of the BPI bank, told Lisbon's Diario de Noticias newspaper.

The International Monetary Fund forecast this week that Portugal's economy would grow 0.4% in 2003, the worst performance in the euro currency zone. The government has forecast growth this year of 1.25 to 2.25%.

The statistics office said the economy had grown 0.5% overall last year, down from 1.6% growth in 2001.