Cyprus central bank cuts ’11 growth forecast on flat Q1

Cyprus's Central Bank cut its growth forecast for the island's economy to 1.4% in 2011 on Friday from a previous 1.8%, saying flat growth in the first quarter was weaker than expected.
In a bi-annual report, the Central Bank said it expected an economic recovery to gather pace in 2012, with gross domestic product expected to expand by 2.1% in real terms.
Cyprus, one of the smallest countries in the 17 nation euro zone, has been struggling with anaemic growth since a recession in 2009. Construction and manufacturing business is still shrinking, though tourism and financial services are showing stronger growth.
The Central Bank said its growth forecasts could be hit by consolidation measures that authorities might take to correct fiscal imbalances. It said it was difficult to gauge the impact because the measures had not been specified.
The Cypriot government says it will launch a debate with labour unions in the public sector on containing salaries and introducing pension reform. The finance ministry projects a public deficit of around 4.5% this year.
"It is noted however that fiscal consolidation will have a positive effect in the long term and boost the growth potential of the economy," the Central Bank said in its report.
It said both yearly forecasts had been lowered from December 2010 projections after the weak first quarter data.
Fitch ratings cut Cyprus's sovereign rating by three notches to A- last month, saying it was concerned about its banks' exposure to Greek debt and the impact this could have on the island's finances.