Portugal in the grip of severe recession says OECD

Portugal is in the midst of a deep recession as the collapse of external demand and tight financial conditions have strangled the economy in most sectors, particularly exports and Direct Foreign Investment.

The latest depressing news was issued by the Organisation for Economic Cooperation and Development (OECD) in advance of its detailed report about the state of the Portuguese economy later in the summer.

Activity is expected to contract throughout 2009 before recovering slowly in 2010 as the global economy and financial conditions slowly improve.

The unemployment rate in Portugal is expected to hit 10 per cent by the end of next year, the highest since the early 1970s.

At the same time, it was announced by the Bank of Portugal that bank loans, both applications and those granted, in Portugal have reached historic low levels (133.3 million euros between January and April) as consumers cut back on non-essential spending.

Sharply lower commodity prices and the large negative output gap will leave inflation at very low levels raising fears of the spectre of stagflation.

Portugal’s Current Account balance went into the red by 12.7 per cent in 2008 and will stand at around -10.7 per cent by next year.