NEXT year will be difficult for the economy because global forecasts are bleak, Finance Minister Charilaos Stavrakis said in his budget speech to parliament yesterday.
Stavrakis still insisted, however, that growth would be in the region of 3.0 per cent, despite forecasts of a little less by the EU last October, and only 2.0 per cent in growth predicted by the Central Bank Governor on Monday.
“We are in a period of uncertainty as regards the course of the global economy and its impact on the Cypriot economy,” Stavrakis conceded.
He said that was why in recent months the European Commission and other international organisations were constantly reviewing their estimates downwards.
“The latest estimates project negative growth in the US and the EU on the basis of these data so a lower growth rate cannot be excluded for 2009 especially if the impact on tourism and construction were particularly unfavourable,” Stavrakis said.
To boost stability of the financial sector, the government is promoting a systematic mechanism for monitoring and evaluation.
“I stress once again that the financial sector is strong and has negligible exposure to risky investments,” Stavrakis said.
“Therefore, it is not required to take extraordinary measures for state guarantees and bank loans or equity payments, as seen in most EU countries.”
The government has however almost completed legislation to guarantee bank deposits up to €100,000.
“The global economy is slowing and this will inevitably have repercussions on the Cypriot economy. Despite the difficulties we face, our economy is based on solid foundations, and we are optimistic that we will succeed to achieve the social and development goals that we set in this year’s budget,” he added.
Stavrakis said almost full employment would prevail in 2009, and inflation would fall significantly to 2.5 per cent while the public debt would continue its downward spiral to around 48 per cent of GDP.
He said little improvement was expected to show in the current account deficit because of the lower international prices of crude oil, foodstuffs and other raw materials on the international markets.
One of the challenges outlined by Stavrakis was non-immediate price adjustments following the recent global price reductions.
“The difference is disproportionate, particularly for the lower income strata,” Stavrakis said, referring to the slow rate at which prices in Cyprus seem to be returning to levels seen before the explosion in oil prices in the first nine months of this year.
Other challenges that lie ahead include the problem of an ageing population and its impact on the Social Security Fund and in the health care sector, Stavrakis said.
Alleviating the water problem, securing sustainable development and renewable energy were other upcoming challenges. “The decisions we take today will determine the course, of this crucial sector in the future,” he said.
Despite the global economic crisis required, the Cypriot economy is expected to achieve satisfactory growth for 2008 amounting to 3.7 per cent to 3.8 per cent, compared to 1.4 percent and 1.2 percent in the eurozone, according to Stavrakis. For 2008 the government expects a surplus of 1.0 per cent of GDP.
“With such performance, Cyprus holds an enviable position within the EU and creates the preconditions for overcoming the consequences of the international recession,” Stavrakis added.
He listed government achievements in increasing social spending, putting together a €52 million package to support tourism and construction, and devising more effective tax collection to increase revenue. There will be no tax increases in 2009, the state has pledged.
“I am convinced that the 2009 budget responds fully to the needs created by the global economic crisis and will give the necessary impetus to economic expansion,” said Stavrakis.
