Ministry of Finance: Commission's Forecast Confirms Cyprus Economy's Satisfying Situation
Nicosia, Jan 20 - The European Commission's extended interim forecast confirms the satisfying situation of Cyprus economy, a press release issued by Cyprus Ministry of Finance said, commenting on the Commission’s forecast.
In regards to Cyprus, the Commission said that economic activity remained strong in the first three quarters of 2008. However, due to the worsening external environment, GDP is expected to have decelerated in the last quarter of the year, which should lead to an annual growth rate of three and a half per cent.
Economic growth is expected to slow down significantly in 2009, but still remain in positive territory, the Commission estimates, pointing out that Cyprus will be one of the euro area three best performing countries in the areas of growth, unemployment and fiscal deficit.
Specifically, the Commission forecast estimates that GDP will increase by 1%, while in the euro area will decline by 1.9%.
The Ministry of Finance expressed optimism that “with the measures taken growth rate will reach 2% during 2009” and assured that it continues to follow closely developments and new data.
“Cyprus has the highest growth rate compared to all the Euro zone countries (except Slovakia which joined the Euro area on January 1, 2009)” the Ministry said, adding that “Cyprus’s economy continues to maintain a dynamic in all fields, despite the international crisis, with the GDP estimated by the European Commission to record an increase of 3.6% for 2008.
The Ministry noted that “the slow growth rate of 2009 compared to 2008 is due to the global financial crisis, which is very deep and has affected all the world.” It also pointed out that the world economy’s situation has worsened in recent weeks and the problems that appeared initially in the international financial system have affected basic sectors of the economy, but also the psychology and the expectations of the people.”
Without any doubt, the Ministry of Finance said the economy of Cyprus is expected to be affected by the reduced foreign demand, but the dynamic of basic sectors of the economy maintain the healthy levels of growth during the recent months, and based on the most recent data, growth will continue to be at a satisfactory level in 2009.
It added that the Government has remained vigilant and prepared in an effective way and timely a fiscal plan to confront the crisis, while it is ready to take additional measures if needed.
Regarding unemployment, the Finance Ministry noted that taking into consideration its own projection for the growth rate, it estimated that unemployment will reach 4.5% in 2009, while the European Commission forecasted that it will climb to 5.1% in 2009, compared to 3.9% in 2008.
According to the Commission’s forecast, economic growth is expected to slow down significantly in 2009, but still remains in positive territory. The Commission pointed out that Cyprus will be one of the euro area three best performing countries in the areas of growth, unemployment and fiscal deficit.
Specifically, the Commission forecast estimated that GDP would increase by 1%, while in the euro area will decline by 1.9%.
Domestic demand will continue being the main driver of growth. In the face of a rising household debt burden and an uncertain environment, private consumption is projected to moderate. Housing investment should decelerate strongly, mainly due to subdued foreign demand.
The Commission forecast also estimated that after posing a surplus of 1% of GDP in 2008, public finances are projected to move into the red in 2009, on account of subdued revenues, though a rise in current expenditure is offset by a reduction in interest payments. The 2010 deficit is projected at 1% on a no-policy-change basis, due to the increasing trend of current expenditure. The debt–to-GDP ratio is projected to fall to almost 46% of GDP by 2010.
Furthermore, the Commission forecast estimated that in line with economic activity, employment growth is projected to decelerate, leading unemployment to rise. Unemployment will increase to 5.1% in 2009 and to 5.5% in 2010, but still Cyprus will record the second best performance in euro area. Following the developments in oil and in commodities, inflation is projected to decrease in 2009 and to edge up in 2010. Due to a modest acceleration in wages, unit labor cost growth is expected to exceed 5% in 2009 before decelerating towards the end of the forecast period.
Inflation in Cyprus is estimated that it will reach 2% in 2009 and 2.3% in 2010.
Public debt is projected to be further reduced from 48.1% of GDP in 2008 to 46.7% in 2009 and 45.7% in 2010.
The current account deficit is estimated that it will be reduced from 13.4% in 2008 to 12% in 2009 and 11% in 2010.