Cyprus cut its economic growth forecast to 2.1% in 2009 from an earlier projection of 3%, and expects a small fiscal deficit this year, on the back of a sharp reduction in home consumption and expectations that the European Commission will proceed with a major downward revision of its growth forecast for the euro-zone.
Finance Minister Charilaos Stavrakis told a news conference that the GDP rate of growth for 2009 is slashed from the original target of 3% to 2.1%. The Unemployment rate is seen deteriorating to 4.5% from the original forecast of 4.2%. Stavrakis is also projecting a deterioration in the fiscal balance and now forecasts a 0.8% deficit as opposed to the original 0.4% surplus.
The growth forecast is more in tune with Central Bank staff projections of 2% growth in 2009.
“On the bright side, the inflation rate is seen at 2% as opposed to our original projection of 2.5% for 2009,” said Stavrakis, who added that despite the sharp reduction in the growth target for 2009, the rate of growth in Cyprus will be far better than the euro-zone average.
Stavrakis told the Financial Mirror that the slowdown/recession in many EU countries and principally in the UK, in addition to the 30% decline of sterling against the euro, in addition to a steep decline in economic strength in Russia as well as a slowdown in home consumption had all contributed to the steep deterioration in the forecasts.
“I remain an optimistic and personally believe that the GDP growth rate will average 2.6% in 2009 and the fiscal deficit will not exceed 0.6% of GDP as I expect a rebound in the second half,” Stavrakis said.
Cyprus registered a surplus of 1% of gross domestic product in 2008 with the GDP growth rate at 3.7%, the unemployment rate at 4%, and the public debt to GDP ratio at 49.5%.