BEIJING -- Dagong Global Credit Rating Co Ltd, China's domestic rating agency, announced on Thursday a downgrade in the local and foreign currency sovereign credit ratings of Portugal from BB+ to BB with a negative rating outlook.

The fiscal austerity and external demand shrinkage means the Portuguese economy will remain in recession and the government debt burden will rise rapidly due to the difficulty in reducing fiscal deficit, Dagong said.

The agency forecast Portugal's economic recession may narrow to minus 2.5 percent in 2013 and minus 1.8 percent in 2014. In the medium term, the economy is expected to come out of recession given effort on fiscal austerity and structural reform.

Economic recession and domestic opposition to austerity measures will increase the difficulty of further fiscal deficit reduction, according to Dagong.

The agency expects the general government deficit rate will rise to 7 percent in 2013 and 6.5 percent in 2014 and the general government debt ratio will reach the peak of over 140 percent in the medium term.