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Government Will Likely Cut Cyprus Growth Forecast Again This Month

by Lorys Charalambous, Tax-News.com, Cyprus

10 April 2003

The government of Cyprus is likely to be forced to cut its GDP growth forecast once again this month as the war in Iraq takes its toll on tourism in particular, and on the economy in general.

Economists now predict the Finance Ministry will reduce its forecast for 2003 to 1.5% from 1.75%, down from a reduced 2% rate in 2002.

The National Economic Council was due to meet on Wednesday where it was hoped that a report by the Finance Ministry's economic research department would give a clearer indication of the state of the economy. However, recent estimates say growth last year was 2%, well below the initial 2.5% estimate put forward by the previous Clerides administration.

The Finance Ministry is also waiting for data on arrivals in the crucial tourist sector for last month, in addition to figures on consumer spending, retail sales, and lending.

According to a Financial Mirror report, the head of the Finance Ministry's Economic Research Department, Andreas Charalambous, revealed that the government's top priority is fiscal discipline, although he emphasised that this will not be at the expense of measures aimed at boosting the economy. It is thought that the government will accelerate development projects in a bid to increase economic activity.

The Finance Ministry has also abandoned strict adherence to the EU's Growth and Stability rules, instead choosing to concentrate on economic stimulus, the Financial Mirror reported.

Meanwhile the EU Commission has also cut its growth forecast for the Island. It previously saw GDP growing a healthy 3.5% this year, but has reduced this to 2%, whilst the 2004 estimate has been reduced from 4.1% to 3.8%.

On other economic indicators, the EU has predicted inflation in Cyprus will be 4.3% this year, declining to 2.2% in 2004. The fiscal deficit is seen at 4% of GDP this year, declining to 3.5% next year. Unemployment will remain low at 3.4% this year, whist the current account deficit will reach 6% though it is forecast to decline thereafter.

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