The economy was heading for recession and could contract by 5 per cent this year said finance minister Constantinos Petrides on Tuesday.
Speaking on CyBC’s current affairs radio show on Tuesday morning, about the government’s measures to prop up the economy, Petrides said “there will be a recession and GDP could contract by about 5 per cent.”
The minister also admitted that “nobody can forecast the real extent of the fiscal consequences,” of the government spending plans, which were approved by the legislature last Friday.
The government package for bolstering the economy, including subsididing the wages of private sector workers whose employer’s operations have been shut down, is worth €813 million, about 3.8 per cent of GDP.
“We have a buffer, but we will still need additional borrowing, to cover our needs,” said Petrides, acknowledging that going to the markets would not be as easy as it was three months ago. Not all states had a triple A credit rating like Germany and with most states wanting to fund their spending through borrowing it might be difficult to secure money in the markets, said the minister.
Petrides said the EU could help in this and efforts were being made for the Union to issue Eurobonds. The plan would be for the ECB to issue Eurobonds and then distribute the money raised among member-states.
“Public finances will take the impact of the added borrowing, but we need a mechanism for securing cheap loans via the EU,” said Petrides.