Portuguese Prime Minister Pedro Passos Coelho announced fresh austerity measures for next year on Friday as the government struggled to meet its economic targets.
He announced a rise in social security contributions for public and private sector workers together with cuts in employers’ contributions in a bid to kickstart job creation, with unemployment running at more than 15 percent.
By increasing private sector social security contributions to 18 percent, the government was able to decrease employers’ contributions to 18 percent as well.
“In so doing we will considerably reduce labor costs ... and we will do so at a time when the financial situation of our businesses is very fragile,” the prime minister said in a nationwide address.
Until now, social security contributions in the private sector had stood at 11 percent, while employers’ contributions had been fixed at 23.75 percent.
Passos Coelho’s statement came as officials from the “troika” of international creditors — the European Union, the IMF and the European Central Bank — visited Portugal.
The global economic institutions are monitoring Portugal’s implementation of spending cuts and economic reforms required in return for the 78 billion euro (US$98 billion) rescue package the country received in May last year.
Given the current economic difficulties, a number of analysts and opposition socialist lawmakers have urged the prime minister to seek either more aid or more time for the country to meet its economic targets. They want to see a relaxation in the implementation of spending cuts.
Passos Coelho has rejected such appeals.
Previous assessments from troika officials have concluded with positive evaluations.
However, new figures showed that the recession was biting deeper.
Portugal’s economy shrank by 1.2 percent in the second quarter compared to the previous quarter and 3.3 percent on a 12-month basis, according to final GDP data from the national statistics institute (INE).
The data, which INE said was attributable to a decline in internal demand, were in line with gross domestic product estimates made last month.
According to INE, internal demand fell 7.6 percent on a 12-month basis, with investment suffering an 18.7 percent decline.
Household consumption, INE said, slid 5.9 percent and public spending declined 3.9 percent, both over 12 months.
Exports, one of the few bright lights in the Portuguese economy, continued to progress but at a slower pace, the institute said.
On a 12-month basis, exports grew 4.3 percent in the second quarter, which was sharply lower than the 7.9 percent increase posted in the previous three-month period.