Portugal’s economy will contract for a third year in 2013 as the government raises taxes and investment drops, the country’s central bank said.

Gross domestic product will shrink 1.6 percent after declining an estimated 3 percent in 2012, the Lisbon-based Bank of Portugal said today in its autumn economic bulletin. In July, the bank forecast no growth for 2013.

“The sharp contraction in internal demand will only be partially compensated by the positive performance of net external demand,” the central bank said in a statement.