PM says Portugal will meet deficit goal as growth flags

LISBON (Reuters) - Portugal will cut its 2016 budget deficit by enough to meet EU commitments and the economy will pick up pace, Prime Minister Antonio Costa said on Wednesday, brushing off criticism from an opposition leader who said his policies had failed.

The country narrowly avoided European sanctions after overshooting last year's deficit target with a gap of 4.4 percent of gross domestic product and now has to meet a goal of 2.5 percent goal set by Brussels for this year.

"Even with the current level of growth, we will have a deficit comfortably below 2.5 percent," Costa told reporters,

"We are confident about the recovery,"

In Wednesday's second GDP reading for April-June, the National Statistics Institute said the economy grew 0.3 percent from the previous quarter, up from the first estimate of 0.2 percent but far from the levels needed to achieve an acceleration this year.

The government has forecast this year's economic growth at 1.8 percent after 1.5 percent in 2015, but Portugal's creditors including the International Monetary Fund and many economists expect a slowdown to around 1 percent and say the country may require additional budget measures to meet its deficit goals.

Costa said he expected domestic demand - which contributed just 0.2 percentage points to second quarter growth - to pick up after his left-leaning minority Socialist government reversed some austerity measures of the previous administration.

He cited strong budget numbers in the first seven months of the year and a fall in unemployment in the second quarter, and said the government would accelerate the distribution of EU cohesion funds and keep working to stabilize the banking system and recapitalise companies.

The deputy leader of the main opposition party, former finance minister Maria Luis Albuquerque, said Wednesday's data showed the government's economic model had failed.

"Private consumption, which was supposed to be the engine of growth, is decelerating," she said, also highlighting that investment fell 3.1 percent, having risen 5.2 percent in the same period last year.

(Writing by Andrei Khalip; editing by John Stonestreet)