Bank of Portugal cuts economic outlook, sees risks for 2014

LISBON, March 26 (Reuters) - Portugal's central bank said on Tuesday it expected the economy to shrink more rapidly this year than forecast during the winter, and warned it might struggle to grow significantly in 2014.

The bank cut its forecast for 2013 gross domestic product to a contraction of 2.3 percent - in line with government forecasts - from 1.9 percent.

While it still expected growth of just over 1 percent next year, it said the bailed-out economy faced significant risks.

"The risks around this projection are globally downward ... being especially notable in 2014," the Bank of Portugal said in its spring economic bulletin released on Tuesday.

"These risks stem from the possibility of a recovery in internal demand being weaker than assumed, as well as adoption of additional budget consolidation measures to meet the goals of the bailout programme," it said. Portugal is under a 78-billion-euro EU/IMF bailout.

The predicted fall for 2013, which comes after last year's worse-than-expected 3.2 percent slump, is the same as the recently revised joint forecast by the government and Lisbon's lenders.

The Bank of Portugal revised its 2014 growth forecast slightly lower to 1.1 percent from 1.3 percent, but this remains much higher than the government's 0.6 percent prediction.

Earlier this month, Lisbon's lenders eased the country's budget goals and gave it more time to make unpopular spending cuts due to a worsening economic outlook. The easing was mostly due to a European recession, but also after the government imposed the largest tax hikes in living memory from this year.

The bank forecast that domestic demand will slump 4.2 percent this year before edging up 0.4 percent in 2014. Both forecasts were revised lower from minus 4 percent and plus 0.8 percent respectively, showing the tax hikes will erode private consumption further.

It said exports should grow 2.2 percent this year, slowing down from last year's 3.3 percent expansion, but should pick up steam and grow 4.3 percent in 2014.

(Reporting By Andrei Khalip; Editing by John Stonestreet)

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Keywords: PORTUGAL ECONOMY/FORECASTS