Cyprus central bank raises 2010 GDP forecast to +0.7%

Cyprus's central bank raised its growth forecasts on Monday, saying the island's economy should grow 0.7% in 2010 and 1.8% next year but action was needed to put deteriorating public finances in order.
In a semi-annual report, the central bank said the upward revision followed positive performances by the tourism and financial services sectors.
"The upwards revision is mainly due to an increase in the GDP growth for the first quarter and better than expected data for the second and third quarter," central bank governor Athanasios Orphanides, a member of the Governing Council of the European Central Bank, told a news conference.
The central bank had forecast in June that gross domestic product (GDP) would shrink 0.5% this year and grow 1.3% next year.
Cyprus emerged from five successive quarters of economic contraction in the first quarter of this year, after registering a 1.7% economic contraction for 2009. Tourism, a key money spinner, slumped last year and revenue has been sapped by a contraction in construction activity.
Despite growth, Orphanides said he was concerned at the upward trend in public debt. Citing European Commission forecasts, Orphanides said that from 585 of GDP in 2009, it was poised to hit 68% in 2012. "The deterioration is disheartening," he said. The EU's target ceiling for national debt is 60% of GDP.
The island's 16.9 bln euro economy represents 0.2% of the euro zone.
Cyprus's public deficit has spiralled in the past two years. It is forecast to hit 5.9% of GDP in 2010, and 5.45 next year without action to plug the shortfall.
Under the European Union's excessive deficit procedure, Cyprus is expected to cut its deficit to 4.5% next year. Its centre-left coalition government has been unable to agree on how to address the situation, even though discussions have been underway for most of this year.
Standard and Poor's last month lowered Cyprus's sovereign credit rating one notch to A, citing domestic banks' high exposure to debt-ridden Greece, implying potential difficulties for the Cypriot government in aiding banks in the event of any fallout.