Lisbon: Portuguese Prime Minister Jose Socrates` Socialists were re-elected for a second term on Sunday but without the absolute parliamentary majority they currently enjoy, sparking fears of instability.
The party secured 96 seats in the 230-seat assembly, compared to 121 in the last election in 2005, against 78 seats for the centre-right Social Democratic Party (PSD), the main opposition party.
Only four seats representing Portuguese citizens residing abroad are left to be counted. attribute.
Socrates, 52, who represents the party`s moderate wing, said the Socialists had scored an "extraordinary election victory" amidst "difficult and demanding circumstances".
"The people have spoken and they have spoken loudly. The Socialists were once again chosen to govern Portugal and they were chosen without any ambiguity," he said.
The lack of a comfortable parliamentary majority however raised the prospect of political instability at a time of mounting economic challenges.
Antonio Barreto, a former Socialist minister and leading sociologist, predicted the new government that emerges after the election would fall before completing a four-year term.
"I think a minority government will hurt the country. We are going to live through a period of demagoguery and spending to win the next elections. I think it is a very negative step for Portugal," he told state television RTP.
Only one minority government has survived its full term since the end of dictatorship in 1974, that of former Socialist premier Antonio Guterres between 1995 and 1999.
It relied on agreements with opposition parties further to the left and right to pass legislation on a case by case basis.
With the unemployment rate at a 22-year-high of 9.1 percent and climbing, Socrates promised massive public works projects, such as a high-speed rail network and a new airport near Lisbon, to help create jobs.
The PSD, weakened by a long-standing internal power struggle, opposed the projects on the grounds that they will increase Portugal`s already high debt level, while also arguing that the private sector should drive economic growth.
But the party failed to make concrete proposals of its own and analysts said this, combined with a perceived lack of charisma by its leader, former finance minister Manuela Ferreira Leite, 68, made it hard for the PSD to capitalise on the nation`s economic woes.
During his first term in office Socrates used this majority to reform the state pension system, as well as health and education, and make the labour market more flexible.
Some of the measures, combined with his belligerent style, alienated many groups of voters directly affected by the reforms such as teachers, judges and police, who staged noisy street protests throughout his first term.
Socrates says his reforms were derailed by the global financial crisis which erupted last year but he argues they have helped the country cope better with the economic downturn than many of its European peers.
Portugal posted gross domestic product growth of 0.3 percent in the second quarter, making it one of the first nations in Europe, along with economic heavyweights France and Germany, to show signs of emerging from recession.
The country`s unemployment rate, while rising, is below the European Union average and is just half the rate in neighbouring Spain.
Anger over the government`s reforms drove many Socialist voters to the hard left.
The Communist-Green Party coalition captured over 30,000 more votes than in the last election while the Left Bloc, an alliance of former Maoist, Trotskyite and other far-left groups captured over 200,000 more votes.
The Communists won 15 seats while the Left Bloc 16 seats. The conservative Popular Party, the only other formation to secure representation, garnered 21 seats.