Cyprus sees downside risk from oil prices

A surge in oil prices could threaten forecast economic growth for Cyprus of 1.5% this year, Finance Minister Charilaos Stavrakis said on Thursday.
"The external environment is difficult and fragile," Stavrakis told an economic conference. "We had a surge in oil prices before the situation unfolding in Japan … these are difficulties which can cause a downside risk."
But Stavrakis said government growth forecasts were "conservative" compared to those of the island's central bank and the International Monetary Fund, which forecast growth of 1.8% this year.
Cyprus, one of the euro zone's smallest economies, emerged from its first recession in more than three decades in 2010.
Last year the economy grew by an estimated 0.9 to 1.0%, Stavrakis said.
Anaemic growth, triggered by a collapse in the real estate market and a drop in tourism arrivals, prompted a government spending spree and Cyprus is now struggling to contain a budget deficit which hit 5.3% of GDP last year.
Authorities expect a shortfall just shy of 4.0% in 2011, but it is almost universally acknowledged that the island needs deep economic reforms to be sustainable in the long term.
Credit rating agency Moody's downgraded Cyprus by two notches to A2 last month, and rival Standard & Poor's cut its rating to A. Fitch, which rates Cyprus two notches higher at AA-, has placed the island on credit watch negative.
Cypriot bank exposure to indebted Greece has also been cited as a concern by all three rating agencies.