2010 outlook still grim

THE recession in Cyprus will continue in 2010 and the recovery in 2011 will be slower than previously thought, according to new forecasts released by the Central Bank (CB) on Friday.

Also, inflation is now expected to reach 2.9 per cent in 2010 compared to 0.2 per cent in 2009, reaching 3.2 per cent in 2011, and unemployment is expected to reach 7.0 per cent in 2010, remaining at the same level in 2011.

Following similar moves by both the European Commission (EC) and the International Monetary Fund (IMF) a few weeks ago, the CB revised downwards its growth forecasts for the Cypriot economy for 2010 and 2011 compared to forecasts made in December 2009.

Instead of the positive growth of 0.3 per cent of gross domestic product (GDP) for 2010 forecast in December 2009, the CB now forecasts a contraction of 0.5 per cent of GDP. The EC’s forecasts were revised from 0.1 per cent growth to 0.4 per cent contraction, while the IMF revised its forecast by a full 1.5 per cent, from 0.8 per cent growth to 0.7 per cent contraction.

The main factors cited are a reduction in domestic demand, the developments in the euro zone, and the expected further downturn in the sectors of construction, tourism and financial services in both 2010 and 2011.

The CB’s latest forecasts are based on data up to May 27, and do not take into account the government’s Statistical Service figure of 0.1 per cent growth for the first quarter of 2010. The CB forecast of 0.5 per cent contraction contrasts sharply with the 0.5 per cent growth forecast reiterated on Tuesday by Finance Minister Charilaos Stavrakis.

The CB’s latest growth forecast for 2011 has been revised from 1.8 per cent of GDP (December 2009) to 1.3 per cent. Similarly, the IMF revised its forecast from 2.7 per cent to 1.9 per cent, while the EC’s forecast remained unchanged at 1.3 per cent growth.

In the CB’s view, the significant forecast rise in inflation will mainly be due to the increase in the price of oil and the depreciation of the euro against the dollar.

The further forecast rise in inflation in 2011 is due mainly to assumptions about oil prices and the euro-dollar exchange rate, plus the planned imposition of 5.0 per cent VAT on food and pharmaceutical goods.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.