Portugal is pinning hopes of repairing its fragile economy on an export revival, Prime Minister Pedro Passos Coelho said on Friday, as the country's recession deepens and it battles to hit tough austerity targets.

The remarkable performance of exports contributed to a strong improvement in the current account deficit in 2011, in spite of the sovereign debt crisis in the euro zone, Passos Coelho said in a written statement to Reuters.

Portugal is entering what will likely be the most demanding year of a deficit-reduction program set as part of a 78-billion-euro bailout package. Its measures include higher taxes, lower government spending and structural reforms designed to loosen an inflexible labor market and boost productivity.

Part of that is a drive to nurture a budding export revival by making Portugal more competitive, lowering labor costs and offering firms easier access to credit and tax incentives while cutting red tape.

Exports jumped 12 percent year on year in the fourth quarter of 2011 as Portugal's trade deficit halved. Sales to countries outside Europe, which account for around 25 percent of the total, grew 27 percent compared to a 7 percent gain for Europe.

Hoping to keep the momentum going, the government launched an agency on Friday tasked with finding ways to attract foreign investment to offset the impact of an austerity-driven slump expected this year to be the country's deepest since the 1970s.

Passos Coelho said the government would use the Strategic Council for Open Economy as a forum for structural reforms. This should put private enterprise on a more competitive footing so as to ignite economic growth, he said.

The council will meet every quarter, bringing together the country's finance, economy and foreign ministers and the heads of business and industry associations.

(Reporting By Sergio Goncalves, writing by Daniel Alvarenga; Editing by John Stonestreet)

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