Cyprus Finance Minister expects higher inflation, lower growth

Cyprus is set to revise higher its inflation rate target while at the same time adjusting lower its GDP growth forecast if the global economic turmoil continues at the current pace and oil prices remain at current levels or even higher, said Finance Minister Chariloas Stavrakis

The State Budget for 2008 prepared by former Finance Minister Michalis Sarris was based on an inflation rate target of 2.5%, which will be widely misses. According to the Statistical Service of Cyprus the rate of inflation in February 2008 reached 4.9% compared to 3.3% in the euro zone.

Stavrakis stated that the Ministry of Finance expects an economic growth below 3.8% in 2008 owing to lower revenue estimates. We recall that Cyprus’ Stability Programme, recently approved by the European Commission, accounts for a 4.1% economic growth for 2008.

Meanwhile Former Finance Minister Michalis Sarris has warned that inflation is one of the biggest threats currently facing Europe, and Cyprus in particular, due the island’s overdependence on oil.
“In fact it [inflation] has probably moved at a faster rate than we had feared,” Sarris said in an interview with the Sunday Mail.
Sarris, who was Finance Minister in the Tassos Papadopoulos government until the end of last month, said economies other than Cyprus, which have had more well-orchestrated energy programmes that discourage people from using energy, were doing better despite the crisis.
Other countries were implementing programmes to encourage people to insulate their houses, to use their cars less, and to use public transport more.
He said another reason inflation in Cyprus had “proceeded perhaps faster than it might have” was excessive bank liquidity. Banks were swimming in cash and competing with each other to find new ways to lend it out.
Less liquidity in the banks would mean less credit in people’s pockets, which would make the public more selective with their purchases when faced with price increases.
Rising wage costs are another inflationary pressure, according to Sarris.
“We have to be vigilant in our wage increases and fiscal policy, and find ways that domestic liquidity is not allowed to run rampant like it has been. The money supply has been running close to 30 percent every year. This is phenomenal,” he added.