Cyprus central bank sees slump, slashes GDP view to -1.1% from 0%

The Cypriot economy will likely contract by 1.1% this year, the central bank said on Thursday as it sharply cut an earlier estimates of zero growth.
Greece's sovereign debt writedown and its impact on the island's banking system, a massive munitions blast that destroyed its largest power station last year, pressure on consumer and investor confidence and the debt crisis in the euro zone were all weighing on growth, the bank said in a bi-annual survey.
Cyprus is due to issue final first-quarter GDP figures on Friday. Estimates issued on May 15 reaffirmed the island was stuck in a recession, with a 0.3% contraction in the first quarter.
The euro zone's third smallest economy has struggled to keep its head above water since its exclusion from international capital markets a year ago, while the Greek writedown saddled its two largest banks with massive losses to the tune of more than 3 bln euros.
With restricted sources of funding, speculation is growing the island may be forced to seek external aid as early as this month to help the recapitalisation of lender Cyprus Popular.
The bank needs 1.8 bln euros – an estimated 10% of GDP – to meet regulatory requirements on capital adequacy by June 30.
In its staff projections, the central bank said the economy was expected to show modest growth of 0.4% in 2013, also adjusted down from a December forecast of 1.3%.
Consumer confidence was also dented by the possibility Cyprus could require a bailout, speculated measures for fiscal consolidation and a rise in unemployment, the bank said.
The previous day, Eurostat reported that GDP in Cyprus dropped by 0.3% during the first quarter of 2012 compared with the previous quarter.
At the same time, unemployment has hit new record high according to figures released by the Cyprus Statistical Service. The number of unemployed reached 36,313 at the end of May, in comparison to 26,050 in May 2011, breaking past the 10% threshold of the labour force.