THE EUROPEAN Commission has predicted that economic growth in Cyprus will slump to 1.1 per cent this year, significantly lower than the government’s projection of 2.1 per cent.
The bleak projections were made in the Commission’s intermediate report on the state of the economy in member states, presented by the Commissioner for Economic and Monetary Affairs, Joaquín Almunia.
According to the report, the growth rate in Cyprus will drop to 1.1 per cent in 2009 but will rise again to 2.0 per cent in 2010.
The government has already twice revised growth downwards since late last year.
Initial estimates were for a growth rate of 3.7 per cent. This was cut to 3.0 per cent before Christmas, and revised again to 2.1 per cent ten days ago, although if the international crisis abated it might reach 2.6 per cent, the Finance Ministry said.
However the EU Commission is preparing for the worst.
Its report projects that 11 of the 16 euro zone members and 18 of the 27 EU member states will see negative growth rates, while unemployment rates are expected to reach 10 per cent.
Cyprus unemployment, according to the Commission expected to reach 5.1 per cent in 2009 and 5.5 per cent in 2010. The government predicts it will clock in at 4.5 per cent in 2009.
The Commission said the public deficit in Cyprus would reach 0.6 per cent in 2009 and 1.0 per cent in 2010, while the public debt is projected at 46.7 per cent this year and 45.7 per cent in 2010. Inflation levels are expected to reach 2.0 per cent in 2009 and 2.3 per cent in 2010.
The report projects a general recession throughout Europe, with spiraling deficits, increased public debts and exceptionally small growth rates.
Adding to the alarm, many European economies will no longer meet the criteria set in the Maastricht Treaty, which are financial preconditions for accession to the EU.
Specifically, nine of the 16 euro zone members and 25 of the 27 member states are projected to have public deficit levels of over 3 per cent, which is the limit set by the Maastricht criteria. These countries include European economic giants Germany, France, Italy and Spain.
Alarmed by these projections, opposition parties in Cyprus yesterday called for an emergency meeting, where all parties could decide on ways to deal with the crisis.
“Unfortunately, the situation is getting worse with each day that passes, and it’s even worse for the European economy. The government should view the financial problem as a national matter,” said DISY vice-president Averoff Neophytou.
He said Europe appeared to be entering a deep financial crisis, “which inevitably can’t leave unaffected the Cyprus economy, which is small and sensitive to outside influences.”
For Cyprus to enter a recession, the economy would have to see two consecutive quarters of negative growth. DISY also criticisd the government for not responding in time to the crisis.
“The government was late in implementing necessary measures to halt the impact from the international crisis. The state could have taken serious measures since last autumn or at the beginning of winter, when securing lending was easier,” added Neophytou.
Coalition partner DIKO agreed that a general meeting was necessary. “The Minister of Finance, in cooperation with the Central Bank should call this general meeting and all involved parties should attend with the aim of setting up a national plan for dealing with the crisis,” said DIKO deputy Antigoni Papadopoulou.
(additional reporting by Jacqueline Theodoulou)
