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Fernando Cruz, right, and Sandra Alves dismantle their clothes and accessories store after closing it down due to the lack of customers, in Lisbon, Monday, March 11, 2013. The couple, who owns two shops, closed one of them after weren’t able to pay the rent and the suppliers. Portugal’s statistics agency says the bailed-out country’s economy contracted 3.2 percent last year, its sharpest downturn since 1975. (AP Photo/Francisco Seco)
LISBON, Portugal (AP) — Portugal’s bailout lenders have agreed to ease its debt-reduction targets amid deteriorating economic prospects, the finance minister said Friday, warning that fully restoring the country’s financial health will take decades and “the efforts of a generation.”

Finance Minister Vitor Gaspar’s assessment of Portugal’s record under a bailout program that has locked it into harsh austerity measures and wrenching economic reforms produced some grim numbers for what is one of the eurozone’s feeblest economies.

The Portuguese economy contracted 3.2 percent last year and is forecast to shrink 2.3 percent in 2013 for a third straight year of recession, Gaspar said. The unemployment rate, currently at a record 17.2 percent, is forecast to climb to 18.5 percent in 2014, he said.

“We’re in a very deep recession,” Gaspar told a news conference. “We’re enduring levels of unemployment that have never been seen in our country.”

The numbers were the latest in a series of negative revisions as Portugal’s economic outlook has progressively worsened and public hardship has deepened. The steep downturn has brought calls from business leaders, trade unions and opposition parties for the government to shift its efforts away from spending cuts and towards encouraging growth.

But Gaspar insisted Portugal is on the right path and will stick with austerity. The sacrifices will start paying off in 2014, when the economy is predicted to grow 0.6 percent, he said.

Portugal needed a €78 billion ($101 billion) rescue in May 2011 when investors, worried by its high debts and meager growth, stopped lending it money.

The bailout lenders — the International Monetary Fund, the European Central Bank and the European Commission — agreed to grant Portugal an extra year, until 2015, to get its budget deficit below 3 percent after a review of how the country is progressing, Gaspar said. The lenders concluded that Portugal is abiding by its commitments under the bailout program and are releasing the latest batch of €2 billion, he said.

The new deficit targets are 5.5 percent of gross domestic product this year, 4 percent in 2014 and 2.5 percent in 2015. They were recalibrated to take into account the economic slowdown, Gaspar said.

It is the second time Portugal has had to revise its targets as it struggles to get traction in its recovery efforts.

The government says last year’s budget deficit was 4.9 percent of GDP, within the 5 percent target. But the European Union’s statistical office has refused to include revenue from the €3.1 billion privatization of airport management company ANA and other one-off effects in the deficit calculation — a decision that may push the 2012 deficit to 6.6 percent, Gaspar said.

Public debt is predicted to peak at 123.7 percent of GDP next year. That is higher than the previously estimated 122.3 percent for 2014. Public debt will fall below 60 percent of GDP — the government’s long-term target — only in 2040, according to Gaspar.

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