Cyprus growth too weak to halt jobless rise – Central Bank

Cyprus's economy is recovering from a recession in 2009, but not strongly enough to halt a rise in unemployment, Cyprus's Central Bank governor Athanasios Orphanides said on Friday.
Orphanides, who is also a member of the Governing Council of the European Central Bank, said swift action was needed to correct structural deficiencies in the island's economy and prevent further slippage.
"We expect that the recovery will continue this year. Unfortunately it is not strong enough yet to curb rising unemployment which has appeared as a result of the (financial crisis) and which will continue for some time."
On Thursday, Moody's downgraded Cyprus's sovereign credit rating two notches to A2, citing fiscal problems and the exposure of its banking sector to debt-ridden Greece.
Orphanides, speaking after a meeting of Central Bankers from South East Europe, said he was also perturbed that fiscal problems was casting the island's banking sector in a bad light.
The Central Bank had in December forecast economic output would grow 1.8% this year. Orphanides declined to give an updated forecast. Unemployment is above 7.0%, unheard of on an island which has typically had a jobless rate of under 4%.
Moody's said there were rigidities in government spending which needed to be addressed, highlighting social transfers and the high public payroll. If these problems were addressed, it said it could consider an upgrade. It also said there were concerns over local bank's exposure to Greece's debt crisis.
"We have known about these problems for years … decisions must be taken as soon as possible to solve these problems," Orphanides said.
He said that structural problems could be rectified but that the fiscal situation was clearly having an impact on the perception of the banking sector, which is very well-capitalised.
"As the supervisory authority, we are trying to see how to maintain the health of the banking sector at high levels, at levels which would disperse any doubts," he said.
The Central Bank recently recommended that banks not pay dividends on their profits in a bid to improve their ratios even further, Orphanides said. It also recommended the establishment of a bank stability fund.