Cyprus’ Finance Ministry, after re-evaluating the impact of the coronavirus pandemic, is sticking to its basic scenario of the economy shrinking by 7% GDP this year.
In comments to the Cyprus News Agency, Finance Minister Constantinos Petrides said that Q1 data indicate that for the first six months the recession was close to 5.5% on an annual basis.
Petrides reiterated that forecasts made at the beginning of the pandemic involved a high degree of uncertainty thus prompting the ministry to review the figures frequently.
The Ministry’s worst-case scenario had predicted that Cyprus’ economy could decline by 13% GDP.
Nicosia still expects the fiscal deficit to reach 4.3% of GDP at the end of the year.
According to the ministry’s data, Cyprus recorded a 4% deficit in the first half of 2020, which translate into €806 mln, compared to the 1.1% surplus or €240 mln, initially foreseen before the pandemic struck.
“This means a deterioration of €1 bln in the first half of the year,” Petrides said, attributing it to the increased state spending and loss of revenues, including the suspension of VAT payments.
Tourist arrivals have also decreased by 84.3% in the first six months to June.
Petrides said domestic tourism, although not able to compensate for losses, “in conjunction with government measures contributed to keeping the tourism sector alive so that it can make a strong comeback next year.”
He said that government stimulus to mitigate the COVID-19 lockdown fallout bore fruit with public spending also maintaining private spending at high levels.
A return to normality is expected in 2021 with a 6% GDP growth rate
According to Petrides, unemployment is expected to increase, touching 9% at the end of the year compared with last year’s 7.1%.
“Government measures appear to have prevented redundancies so far, but there is no room for complacency on behalf of the authorities.”
Public debt is expected to reach 120% of GDP or around €23.8 bln.
Public debt reached 95.5% in 2019, official data shows.
The increase reflects the borrowing spree the Finance Ministry mounted to mitigate the impact of the coronavirus outbreak.
The Finance Minister defended the government’s policy not to make cutbacks in the state payroll, arguing that recession would have been deeper.
“The fact that we implemented a programme to support disposable income without simultaneous cutbacks … in conjunction with supporting the economy through increased public spending, is one of the reasons private consumption was maintained and there was no drop in economic activity.”
“This does not mean that the state’s fiscal policy, which is reaching its limits, will be able to be as expansive as it was in the pre-crisis period.”