Portugal central bank recommends more austerity

Portugal's government must implement more austerity measures in order to meet deficit targets agreed under its bailout programme with the EU and IMF, the central bank said on Thursday. "The target for the budget deficit in 2011 will only be achieved with significant additional measures," the Bank of Portugal said in a seasonal report on the economy. In exchange for a 78-billion-euro ($104 billion) rescue from the European Union and International Monetary Fund, the government has slashed spending in order to reduce the public deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent of GDP by the end of this year. With prospects for growth dampened by a global slowdown, the Bank of Portugal said current measures were insufficient and stressed the "urgent needs" for reforms in the judicial system and the labour market. The central bank also warned that if the measures already passed were not implemented the budget for 2012 would be "particularly demanding" and also require another set of structural reforms "from the outset". Last week, Portugal said its GDP would contract by a greater than expected 2.5 percent in 2012 because of the gloomier global economic outlook. In anticipation, the centre-right government of Prime Minister Pedro Passos Coelho promised to announce new austerity measures by mid-October.