Portuguese shares fall 3% amid growth fears

Portuguese shares fall 3% amid growth fears
# 14 May 2010 20:01 (UTC +04:00)
Baku – APA. Portugal’s stock market fell almost 3 per cent on Friday amid fears that new austerity measures to cut the country’s yawning budget deficit would hit economic growth, APA reports quoting “Financial Times”.
The new austerity drive followed similar measures by Spain, Greece and Ireland as part of a push by eurozone countries to convince financial markets that they are tackling budget problems following this week’s €750bn emergency support plan for the euro.
Vitor Constâncio, governor of the Bank of Portugal, said the extra spending cuts and tax increases would have a “temporary restrictive effect on growth”.
But he added that the package announced by the minority socialist government on Thursday was the only possible course of action to ensure Portugal’s credibility in international financial markets.
“We have to correct our deficits more quickly and more severely to make sure we can access markets and finance the country on a regular basis,” he said. Portugal had run out of time for a more gradual fiscal adjustment.
After Greece, Portugal was seen as one of the European Union countries most vulnerable to an attack by markets.
Economic growth of 1 per cent in the first quarter, the highest in the EU, had lifted hopes that Portugal would move out of recession faster than expected. But investors fear cuts being imposed in Portugal and across Europe will hit domestic demand and exports.
Analysts said banking and building were among the sectors most likely to suffer the negative effects of Portugal’s austerity measures.
The austerity plan announced by José Sócrates, Portugal’s prime minister, aimed to cut the budget deficit by more than half in under two years, from 9.4 per cent of gross domestic product in 2009 to 4.6 per cent in 2011.
The extra measures include a 5 per cent pay cut for politicians and senior public sector managers as well as increases in value added, income and corporate taxes ranging from 1 to 2.5 percentage points.
Trade unions and leftwing parties have called for strikes and demonstrations against the measures. Jerónimo de Sousa, leader of Portugal’s hardline Communist party said: “This is the road to disaster. We need to respond with protest and struggle.”
Fernando Teixeira dos Santos, finance minister, acknowledged social tensions were likely to increase but said he was confident protests would not turn violent.