THE GLOBAL financial crisis has prompted a new revision of the island’s 2009 economic growth rate, down from 3.0 per cent to 2.1 per cent, Finance Minister Charilaos Stavrakis said yesterday.
Stavrakis cited the deteriorating European, UK and Russian economies, the most important partners for Cyprus when it comes to tourism, real estate and financial services.
He also referred to the decline in consumer confidence, which was worsened by “scaremongering” about the potential problems the economy could face as a result of the global crisis.
“The central projection of the finance ministry is growth of 2.1 per cent. For public finances, from a small surplus [in 2008] we expect a small deficit,” said Stavrakis.
It is the second time in three months that the government has revised the 2009 GDP growth outlook downwards. Initial estimates were for a growth rate of 3.7 per cent. This was cut to 3.0 per cent late last year, the figure used in the 2009 budget.
Yesterday, however, Stavrakis said a growth rate of 2.1 per cent was more likely, and in a more optimistic climate it might even reach 2.6 per cent.
The 2.1 per cent forecast is more in line with recent predictions by the Central Bank Governor that the growth rate would be 2.0 per cent in 2009.
The expected surplus of 0.4 per cent for 2009 has also been revised downwards to a small deficit of 0.8 per cent in a worst case scenario, but most probably 0.6 per cent.
However, Stavrakis said what was important was that Cyprus was aiming to have the highest growth rate in the euro zone, which is expected to experience negative growth of 0.9 per cent this year.
“The international financial crisis indeed is getting worse and this inevitably affects an open economy as that of Cyprus. However, we continue to believe that we will have very satisfactory growth rates,” Stavrakis told a news conference.
“We still believe that we have very good growth,” he said.
“I remain optimistic and personally believe that the GDP growth rate will average 2.6 per cent in 2009 and the fiscal deficit will not exceed 0.6 per cent of GDP as I expect a rebound in the second half.”
According to Stavrakis, inflation for 2009 will stand at 2.0 per cent from the 2.5 per cent originally forecast, and the 4.7 per cent it reached in 2008. Unemployment in 2009 is expected to increase slightly to 4.5 per cent from 4.2 per cent.
“To be fair, in October, November and December we had full employment and very strong growth and good fundamentals,” he said. “The only thing that has really changed is the psychology, but psychology impacts and affects the economy, and unfortunately creates a vicious circle.”
Positive developments had been the reduction in global oil prices and raw materials, plus reductions in base interest rates, which was good for external debt, Stavrakis said.
The government was increasing spending by 11 per cent, and had given €52 million to support the tourism and construction sectors, he added.
“Based on the criteria of the European Commission, our fiscal policy is good,” Stavrakis said.
Stavrakis dismissed reports yesterday of a new tax amnesty that could increase state revenue. “There is no possibility for such a thing at this time,” he said.
