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IMF: Eurozone needs Portugal to stay on track

Railway workers march under the rain towards the Portuguese economy ministry during a protest in Lisbon, Thursday, Jan. 17, 2013. The workers were protesting against salary cuts, that is as a part of an austerity economic measures taken by the Portuguese government linked to a euro 78 billion ($102 billion) bailout needed in May 2011. (AP Photo/Francisco Seco)

LISBON, Portugal (AP) -- The International Monetary Fund is warning Portugal against the temptation to relax its contentious austerity drive, saying any backsliding could undermine the 17-country eurozone's recovery.

The Portuguese government's latest tax hikes are costing many workers the equivalent of at least a month's pay this year. Meanwhile, the economy is forecast to enter a third straight year of recession and unemployment is at a record 16.3 percent.

The IMF contributed to Portugal's €78 billion ($104 billion) financial rescue in May 2011 that spared the debt-heavy country from bankruptcy but demanded cutbacks.

The IMF said abiding by the loan's terms is needed "to avoid the emergence of renewed stress in the euro area."

It predicted in a report Friday the Portuguese economy will start recovering gradually at the end of 2013.