The government also said it will inject up to €6.65 billion into three of its largest lenders so they can meet international and domestic capital requirements, and weather loan losses. Besides paying interest, the banks will also make specific commitments to lending to small companies, helping tackle one of Portugal's biggest problems. Officials from the European Union, International Monetary Fund and European Central Bank revised their forecast for 2012 to an economic contraction of 3 per cent, from 3.3 per cent previously, in their fourth quarterly review of a €78 billion financial bailout to Portugal.
Prime Minister Pedro Passos Coelho has hewed the austerity programme set by the troika, making deep cuts in public sector wages, raising taxes and saying the country can only grow through fiscal discipline. While austerity policies damp domestic demand, export growth has exceeded expectations as companies find new markets outside the EU, especially in China. One area where the government should be doing more is in overhaul of its labour market laws, which discourage companies from hiring for fear they won't be able to lay off staff when demand falls, the troika said.