EU slashes Cyprus’ growth target to 0.3%

The European Commission (EC) anticipates that in view of the ongoing global crisis, economic growth in Cyprus is expected to slow significantly in 2009 but still remain in positive territory. Cyprus’ GDP growth is expected at 0.3% and 0.7% in 2009 and 2010 respectively.
Domestic demand should continue to drive growth, whilst tight financial conditions and rising household debt burden would cause private consumption to moderate expanding by just 1% in 2009. Investment activity is also projected to decline further. The slower pace of private consumption and investment should also put a break on import demand, which is expected to contract in view of the bleak economic environment of Cyprus’ major trading partners. In line with the worsening economic outlook, employment is projected to decline in 2009, particularly in those sectors most exposed to the downturn, (i.e. real estate and tourism sectors). Unemployment rate is seen at 4.7% in 2009, whilst in 2010 is expected to increase to 6.0%.
Additionally, HICP inflation is projected to slow even lower to 1.1% in 2009 and to pick up in 2010 to 2.0%, influenced by lower projected energy prices. Finally, fiscal deficit is expected to settle at 1.9% and 2.6% in 2009 and 2010 respectively. It is clear that the downward revisions made in economic activity throughout the eurozone indicate the deteriorating economic conditions of Cyprus’ major trading partners.