UPDATE 2-EU says Portugal may need more fiscal cuts

* EU: plan ambitious, concrete, but marred by risks

* EU: Portuguese growth may be lower than expected

* EU: Portugal needs to boost productivity, competitiveness

(Updates with details, background)

By Marcin Grajewski

BRUSSELS, April 14 (BestGrowthStock) – Portugal may need additional
fiscal cuts this year to rein in its wide budget deficit as
economic growth and government revenues may prove lower than
expected, the European Commission said on Wednesday.

The European Union’s executive called the Portuguese
medium-term fiscal plan “ambitious and quite concrete” but noted
it focused mainly on 2011 onwards, and said the country should
improve its competitiveness, overhaul loss-making state firms
and lower its ballooning current account deficit.

The Commission’s assessment offered some guidance to those
investors who believe Portugal could be the next weak link in
the euro zone after Greece’s debt crisis.

Portugal plans to cut the country’s budget deficit to below
the EU’s ceiling of 3 percent of gross domestic product by 2013
from 9.4 percent last year when the country was hit hard by the
economic crisis.

“Achieving the ambitious fiscal consolidation path
may require efforts beyond those outlined in the programme,” the
Commission’s report said.

“First, the outlined revenue performance and expenditure
containment may be difficult to attain on the basis of the
announced measures, already in 2010,” it added.

Portugal’s forecast that its economic growth will accelerate
from 0.7 percent this year to 0.9 percent in 2011, 1.3 percent
in 2012 and 1.7 percent in 2013 may not materialise.

“There is the risk that a lower-than-assumed GDP growth
would dampen revenue growth and jeopardise the fall in the
expenditure-to-GDP ratio,” the report said.

Still, EU Monetary Affairs Commissioner Olli Rehn called the
plan “ambitious and quite concrete”, despite risks in Portugal,
homeland of European Commission President Jose Manuel Barroso.


The government hopes its plan will convince markets and EU
peers that Portugal will tackle deficits and control its debt
thanks to measures such as wage moderation in the public sector
and capping personal and company tax breaks.

The costs of protecting Portuguese government debt against
default rose on Wednesday along with those of Greece.

Euro zone countries have been forced to offer Greece massive
aid to try to prevent it from defaulting and to end tensions in
the euro currency area.

In its recommendation for Portugal, the Commission said it

* achieve the 2010 deficit target of 8.3 percent of GDP, if
necessary by adopting additional consolidation measures;

* back up the strategy to bring the deficit below 3 percent
by 2013 by the timely implementation of concrete measures; stand
ready to adopt further consolidation measures;

* improve the quality of public finances;

* raise productivity and potential GDP growth in a sustained
way, to boost competitiveness and to narrow the large external
Investing Advice

(Editing by Stephen Nisbet)

UPDATE 2-EU says Portugal may need more fiscal cuts