Here are some updated figures from the 2nd quarter of 2011, and news of budget changes ahead. Unemployment is down and Exports trade up but there are tax increases on the way.

Budget Changes

Finance Minister Vitor Gaspar went to Parliament last week with a new budget for the next four years, which includes the biggest cut in government spending in decades. Immediate plans to cut more than €1.5bn in spending will focus primarily on the Health sector, which is being asked to reduce spending by €810m by reducing the amount of state subsidy for services and drugs, this will mean that some prescription drugs and medical test will increase in price.

In addition, the tax burden will increase. Portugal will raise capital gains taxes from the current 20% to 21%. IVA could increase from 6% to 23% on a number of non-essential items, and it will increase on 1st Octobver on gas and electric. There is expected to be increased taxes for large corporations as the government strives to meet its deficit-reduction goals in its 78 billion-euro bailout. The moves will help cut the budget deficit from 5.9% of GDP this year to 3% percent in 2013, and 0.5% percent in 2015, Gaspar said.

In his presentation to parliament, Finance Minister Vitor Gaspar said he expects Portugal’s economy to shrink 1.8% in 2012, after a slightly sharper drop in 2011. But he said the country will return to growth in 2013, forecasting a 1.2% increase for that year, followed by a 2.5% rise in 2014.

National Statistics Institute Data

In the 2^nd quarter of 2011, GDP reduced by 0.9% in real terms compared to the same quarter 2010. The 1^st quarter’s change rate compared to 2010 was -0.5%.

The GDP is unchanged compared to the 1^st quarter 2011, and this means that the countries growth is slowing, as expected.

On a positive note the Form May – July 2011 exports increased by 14.9% and imports only by 0.2% (compared to the same period in 2010), this lead to a decrease in the trade deficit, which is a positive indicator for Portugal.

Economic gloom continued in August, according to data released last week by the National Statistics Institute. The INE said that confidence in the service sector, as well as the public works and retail sectors, continued to deteriorate, with the overall sentiment indicator dropping 2.4 points to its lowest level in 11 months.

The unemployment rate showed slight improvement in July, at 12.3%. In June the jobless rate was 12.5%, after peaking at 12.6% in May.

Summary

Things may be hard in Portugal for the next 2 years, but the cuts are essential for the country to return to growth and to comply with the IMF Bail-Out terms. Both Ireland and Greece have found it necessary to re-negotiate the terms of their bail-outs, but reports in the press this week show that analysts are confident that Portugal will not need to if they continue with the austerity measures as planned.