Cyprus Central Bank Governor and European Bank Member Athanasios Orphanides said that the forecast the CB issued last December for a 2% growth rate in 2009 is ''too optimistic.''
''The consequences of the global financial crisis are so far at least relevantly more benign and our banking sector does not face particular problems. The extent of the financial uncertainty however is considerably increased and further significant deterioration in domestic economic activity cannot be ruled out, if we take into consideration the significant deterioration of the already negative international climate,'' Orphanides says in a statement read out during a meeting of the Cyprus Finance Ministry's Finance Advisory Committee.
He added that the international developments and the revisions of the European Central Bank's forecasts on the growth in the Euro area ''render the December forecasts of the Central Bank too optimistic.''
''It would be prudent to prepare for this possibility, mainly through the preparation of alternative measures, which will enable our robust banking sector to contribute decisively in restraining further slowdown in financial activity, if necessary,'' he added.
The Cyprus CB Governor said his concern rests on the fact that the ''situation of the global economy significantly narrows the limit we have for a timely implementation of the necessary measures aiming at restraining a further slowdown of the financial activity.''
Noting that the ECB forecasts that Euroarea's GDP will decline by 2.7% and the Organisation for the Economic Cooperation and Development (OECD) estimates that the GDP will shrink by 4%, Orphanides notes that ''given the dramatic developments in the Euro area but also in the UK, these statistical data, if only indicative representative, show at least the trends which someone would expect in relation with a possible deterioration of our financial indicators.''
He also recalled the Cyprus CB's proposals during the January meeting of the advisory committee, namely the issue of special three-year government bonds to banking institutions in Cyprus, which in turn would use them to pump liquidity from the ECB's collateral, as well as the granting of corporate loans from domestic credit system, through risk-sharing arrangements.
''I believe that these suggestions should, after the relevant processing and alterations, be included in the alternative scenarios which should be ready to be activated if necessary,'' he adds.
Concluding, the Cypriot CB Governor points out the need that ''any measures implemented by the government must in no case neglect the realities being shaped with regard to a serious decrease in the public revenues (tax revenues) due to the slowdown in the economic activity.''
