The finance ministry is sticking to its basic scenario of the economy shrinking by 7 per cent this year due to the fallout of the coronavirus crisis, Minister Constantinos Petrides said on Monday.
“Having analysed the data for the first half, our forecast will not change from last April’s forecast,” Petrides told the Cyprus News Agency.
In the first six months, recession was close to 5.5 per cent on an annual basis, the minister said.
Petrides reiterated that from the start of the pandemic, forecasts involved a high degree of uncertainty thus prompting the ministry to review the figures frequently.
The minister said they still expected the fiscal deficit to reach 4.3 per cent of GDP at the end of the year.
In the first half of 2020, Cyprus recorded a 4 per cent deficit, or €806m, instead of 1.1 per cent surplus, or €240m.
“This means a deterioration of €1bn in the first half of the year,” Petrides said, which was the result of increased spending and loss of revenues, including the suspension of VAT payments.
On the positive side, government stimulus to mitigate the fallout bore fruit, according to Petrides, with public spending also maintaining private spending in high levels.
The minister said he hoped to return to normality in 2021, expecting a growth rate of around 6 per cent.
According to the minister, unemployment was expected to be close to 9 per cent at the end of the year compared with last year’s 7.1 per cent.
Public debt is expected to reach 120 per cent of GDP, or around €23.8bn.
Petrides defended the government’s policy not to make cutbacks in the payroll, arguing that recession would have been deeper.
“The fact that we implemented a programme to support disposable income without simultaneous cutbacks … in conjunction with supporting the economy through increased public spending, is one of the reasons private consumption was maintained and there was no drop in economic activity,” he said, keeping the worst-case scenarios at bay.
The minister struck a note of caution however, warning that the government’s fiscal policy, which is reaching its limits, will not be so extensive as it was before the crisis.