Portuguese Prime Minister Pedro Passos Coelho has announced fresh austerity measures for 2013 as the government struggles to meet its economic targets.
He announced a rise in social security contributions for public and private sector workers together with cuts in employers' contributions in a bid to kickstart job creation, with unemployment running at more than 15 per cent.
'Unemployment has reached an intolerable scale,' Passos Coelho said.
By increasing private sector social security contributions to 18 per cent, the government was able to decrease employers' contributions to 18 per cent as well.
'In so doing we will considerably reduce labour costs... and we will do so at a time when the financial situation of our businesses is very fragile,' the prime minister said in a televised address.
Until now, social security contributions in the private sector had stood at 11 per cent, while employers' contributions had been fixed at 23.75 per cent.
Passos Coelho's statement came as officials from the 'troika' of international creditors - the European Union, the International Monetary Fund and the European Central Bank - visited Portugal.
The global economic institutions are monitoring Portugal's implementation of spending cuts and economic reforms required in return for the 78-billion-euro ($A95.69 billion) rescue package the country received in May 2011.
Given the current economic difficulties, a number of analysts and opposition socialist MPs have urged the prime minister to seek either more aid or more time for the country to meet its economic targets.
They want to see a relaxation in the implementation of spending cuts.
Passos Coelho, however, has rejected such appeals.
Previous assessments from troika officials have concluded with positive evaluations.
But new figures showed that the recession was biting deeper.
Portugal's economy shrank by 1.2 per cent in the second quarter compared to the previous quarter and 3.3 per cent on a 12-month basis, according to final GDP data from the national statistics institute, or INE.
The data, which INE said was attributable to a decline in internal demand, were in line with gross domestic product estimates made last month.
According to INE, internal demand fell 7.6 per cent on a 12-month basis, with investment suffering an 18.7 per cent decline.
Household consumption, INE said, slid 5.9 per cent and public spending declined 3.9 per cent, both over 12 months.
Exports, one of the few bright lights in the Portuguese economy, continued to progress but at a slower pace, the institute said.
On a 12-month basis, exports grew 4.3 per cent in the second quarter, which was sharply lower than the 7.9 per cent increase posted in the previous three-month period.
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