Portugal's gross domestic product fell 0.4 per cent in the third quarter from the second, data showed today, as the country's recession deepened under the weight of sweeping austerity.

The National Statistics Institute's (INE) flash GDP estimate showed a decline of 1.7 per cent year-on-year, with consumption and investment slumping.

In the second quarter, GDP posted a revised decline of 0.1 percent from the previous quarter and slumped 1.0 per cent year-on-year. The initial readings were zero and 0.9 per cent, respectively.

Portugal slid into recession in the first quarter of this year after growing 1.4 per cent for the whole of 2010.

INE said the sharper yearly decline in GDP was "above all due to a deceleration of exports of goods and services, although they still maintained strong growth, and because of a significant reduction in investment."

The INE does not provide breakdowns for GDP components in the flash estimate.

Today's data confirms the likelihood of a sharp recession as the country grapples with deep austerity, having to sharply cut spending to meet the budget goals of a €78-billion bailout from the European Union and IMF. The government expects GDP to contract 1.9 per cent this year and 2.8 per cent next year.

"In our opinion, the reduction in activity in the third quarter reflects more the difficulties of financing and lack of confidence of economic agents than the impact of austerity," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants.

Mr Garcia added that as austerity measures intensify in coming quarters, the recession will deepen. Large cuts, including the elimination of civil servants' year-end and holiday bonuses next year, are seen taking a heavy toll on the economy.

Reuters