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IMF: COVID-19 pandemic will see Cyprus economy shrink 6.5%

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The Cyprus economy will shrink by 6.5% of GDP this year due to the coronavirus pandemic followed by a sharp rebound in 2021, the International Monetary Fund (IMF) said in its World Economic Outlook.

According to the IMF, following a growth rate of 3.2% in 2019, Cyprus GDP will shrink by 6.5% in 2020, compared with its projection of 2.9% in the October 2019 WEO.

In 2021 the Cypriot economy is projected to bounce back registering a growth rate of 5.6%.

Cyprus inflation is predicted at 0.7% for 2020 follower by 1.0% the following year.

Unemployment is expected to rise from 7.1% in 2019 to 8.8% this year but projected to decline to 7.4% in 2021.

Cyprus’ current account deficit is projected to reach 8.3% from -6.7% in 2019 and should decline to -5.6% in 2021.

Due to coronavirus pandemic, the IMF downgraded its projections for world output, which is forecasted to shrink by 3.0% this year followed by a sharp recovery in 2020 amounting to 5.8%.

The euro area economy is expected to shrink by 7.5% followed by a recovery reaching 4.7% in 2021, while the US economy is forecast to shrink by a rate of 5.9% GDP to be followed by a growth rate amounting to 4.7% next year.

“This crisis is like no other. First, the shock is large,” IMF said.

“The output loss associated with this health emergency and related containment measures likely dwarf the losses that triggered the global financial crisis.”

The IMF said the crisis will need to be dealt with in two phases: one of containment and stabilization followed by the recovery phase, while “in both phases, public health and economic policies have crucial roles to play.”

“Quarantines, lockdowns, and social distancing are all critical for slowing transmission, giving the healthcare system time to handle the surge in demand for its services and buying time for researchers to try to develop therapies and a vaccine.

These measures can help avoid an even more severe and protracted slump in activity and set the stage for economic recovery.”