Portugal Approves EU2.2 Billion Plan to Boost Economy

By Laura Cochrane and Joao Lima

Dec. 13 (Bloomberg) -- Portugal approved a 2.2 billion- euro ($2.9 billion) economic-stimulus package to modernize schools, boost jobs and fund exporters in a bid to limit the impact of Europe’s first recession in 15 years.

The package, passed today by the cabinet, is equivalent to 1.25 percent of the country’s gross domestic product and will result in a budget deficit of 3 percent of GDP next year, exceeding the government’s previous goal of 2.2 percent, according to an e-mailed presentation by Prime Minister Jose Socrates.

“This plan is an initiative for more public investment,” Socrates said on television station SIC Noticias.

Portugal’s economy shrank in the three months through September as exports dropped after some of its biggest European trading partners contracted. Europe’s economy entered a recession in the third quarter amid the worst financial-market turmoil since the Great Depression.

European Union leaders pledged economy-boosting steps in a proposed stimulus package worth about 1.5 percent of gross domestic product, according to a statement at a summit yesterday in Brussels. The figure is equal to 200 billion euros.

Of the total package in Portugal, 1.3 billion euros will be funded by the country’s budget, with the rest coming from European funds, Finance Ministry spokesman Vasco Noronha said today by telephone.

Support for Exporters

Portugal will spend about 800 million euros on “fiscal incentives,” Noronha said, including credit lines to support exporters, with a further 500 million euros set aside for schools, 250 million euros for energy installations and 580 million euros for employment programs.

Portugal’s economy shrank 0.1 percent from the second quarter, when it expanded 0.3 percent, the Lisbon-based National Statistics Institute said Dec. 9.

The economy of the 15 euro nations shrank 0.2 percent in the third quarter from the previous three months, when it also contracted 0.2 percent. European Central Bank forecasts show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993.

With the 15 euro-region countries accounting for about two- thirds of Portugal’s exports, the Bank of Portugal on Nov. 18 cut its growth forecasts, saying the economy will expand 0.5 percent this year compared with 1.9 percent in 2007. The forecast for export growth was cut to 1.4 percent from the 4.4 percent estimate announced in July.

Central banks around the world are cutting borrowing costs as governments boost spending to contain the fallout from the financial crisis. The shrinking economy and intensification of the financial crisis have forced the ECB to reduce its benchmark lending rate by an unprecedented 1.75 percentage points in the past two months.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.net; Joao Lima in Lisbon at jlima1@bloomberg.net.