Gloomy economic outlook for Portugal

A woman passes by a closed store in Fanqueiros street in Lisbon downtown on Jan. 16, 2012. In the past few years there's been a huge decline in the percentage of sales of the small trade shops in Lisbon. Fanqueiros Street was, in other time, the busiest and the most popular street in Lisbon downtown for costumers who wanted to buy tailored men's suits, fabrics, all made by portuguese industry, now the scenerio has changed quite a few shops closed down and the ones that have left their doors open are on the edge to shut down their sales because the are no costumers and their outfitters are bankrupt.
PATRICIA DE MELO MOREIRA/AFP/Getty Images

(AP) LISBON, Portugal - The Bank of Portugal forecasts the Portuguese economy will stagnate in 2013 after a steep recession this year as austerity measures attached to a 78 billion euro ($103.5 billion) bailout continue to bite.

Portugal became the third euro country after Greece and Ireland in needing a financial rescue last year to avert looming bankruptcy.

The central bank said in a report Thursday it expects the economy to contract 3.4 percent this year and record zero growth in 2013. The economy shrank 1.6 percent last year.

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The bank said tax hikes and pay and welfare cuts have brought a sharp downturn in domestic consumption, which it sees falling 6.2 percent this year and 1.6 percent in 2013.

Unemployment has climbed to a record 14.8 percent.