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Portugal hit by worst recession in 37 years as slump deepens amid austerity measures

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LISBON, Portugal - Portugal's statistics agency says the economy contracted 3.2 per cent last year — its sharpest annual downturn since 1975.

Portugal is enacting broad debt-reduction measures, including tax hikes and pay and pension cuts, in return for a €78 billion ($102 billion) international financial lifeline it received in May 2011. Those austerity policies are widely blamed for the deepening recession and growing hardship.

The National Statistics Institute said Monday that a drop in private consumption and slower export growth were the main factors behind the slump, with the economy shrinking 3.8 per cent in the fourth quarter.

Unemployment stands at 17.6 per cent, the third-highest rate in the 27-nation bloc after Greece and Spain.

The economy contracted 1.6 per cent in 2011. The government predicts a 2 per cent contraction this year.

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