Gradual reductions in unemployment, which will carry on through to next year, as well as a satisfactory growth rate for 2011 and 2012 were the most positive conclusions for Cyprus’ economy in Eurostat’s 2011 spring forecast.
However, the European Commission's (EC) service predicts a higher deficit to the one the government hopes to end 2012.
Expressing his satisfaction at the figures after they were announced yesterday, Finance Minister Charilaos Stavrakis said the most important prediction – by the EC but also the International Monetary Fund (IMF) on Thursday – was that there would be an improvement on the island’s growth rate.
Specifically, the EC predicts a 1.5 per cent growth rate for 2011 and the IMF 1.7 per cent.
The deficit, which the EC predicts will close at 5.1 per cent of Gross Domestic Product (GDP) this year, “is completely manageable”, said Stavrakis, who pointed out that the IMF had in fact predicted a 4.5 per cent deficit – which would be in line with the government’s and EU’s goal for 2011.
“The figures for the deficit are completely manageable,” said Stavrakis. “With our continuing effort to restrict the state’s expenditure, we will achieve our goals this year too.”
The deficit, according to Eurostat, will reduce from 5.1 to 4.9 per cent in 2012. But there is quite a gap from the 3.0 per cent deficit Cyprus committed to when the economy went under surveillance and entered procedures for having an excessively high deficit.
Eurostat predicts an increase in public debt as well. According to the stats, the growth rate wil
l reach 1.5 per cent in 2011 and 2.4 per cent next year.
Unemployment will reduce from 6.3 per cent in 2011 to 5.6 per cent in 2012. There will also be a drop in inflation from 3.4 per cent in 2011 to 2.3 per cent in 2012.
However, the public debt will increase from 62.3 per cent of GDP in 2011 to 64.3 per cent in 2012.
Stavrakis said the most recent forecasts refuted the recent criticism the government has been receiving over its financial handlings.
“The two organisations’ forecasts disprove the extreme scenarios on the economy that have been projected and adopted by the opposition, speaking of a deficit in the range of 6.0 per cent and an unemployment rate of 8.0 per cent,” said the minister.
Stavrakis stood particularly on the “extremely fragile external environment” and said the difficulties faced by many EU states in securing loans to cover their needs.
Justifying the government’s recent €100 million loan, he added: “The government took out a precautionary loan from abroad and from the local market, with very competitive interest rates.”
He said the state had managed to create reserves of around €780 million in cash and bank deposits, “creating a protective shield for the economy, in the event that there are problems in other countries of the eurozone”.
Ruling party AKEL’s spokesman, Stavros Evagorou, said the forecasts were satisfactory.
“We can’t be over-optimistic, but we can say that the economy is on a correct course,” said Evagorou. “The results are satisfactory, based on the estimations of the European Commission itself.”
Opposition DISY didn’t share the enthusiasm. “It is worrying that despite the fact that financial growth is predicted to continue its ascending course, Cyprus’ public deficits remain high and the public debt will increase further,” the party announced. “And this is despite burdening the public with extra taxes on food and pharmaceuticals, fuel, tobacco products and duties on bank deposits.”
DISY also pointed out that the EC’s forecast was “quite more pessimistic than the government’s forecasts, included in the Stability Programme it sent to Brussels just a few days ago”.
The party added that the EC’s prediction for a 5.1 per cent deficit was a far cry from the government’s forecast of a 4.0 per cent deficit for 2011.