Former Disy leader Averof Neophytou on Thursday called on the government to take immediate measures to deal with the negative trends shown by economic indicators in the second quarter of this year.

“The negative developments in the economy, which were made public yesterday, will simply be the tip of the iceberg if serious and prompt measures are not taken,” said Neophytou in a written statement.

The statistical service, on Wednesday, issued data for the second quarter of the year that showed an economic slowdown. Whereas in the first quarter of 2023, the growth rate was 3.2 per cent compared to the corresponding period of the previous year in the second quarter it fell to 2.3 per cent.

GDP had contracted by 0.4 per cent from the first to the second quarter, prompting former finance minister Constantinos Petrides, to tweet that this was “worrying” and that the “slowing down of the economy usually appears before every crisis”.

Neophytou was also scathing about the fiscal deficit as well as the deficit in the balance of payments, which exceeded 9 per cent of GDP.

“When the deficit in the balance of payments exceeds 4 per cent of GDP – and is kept above this for an extended period of time – alarm bells ring in Brussels and the red lights go on in the procedures for the monitoring of macroeconomic imbalances,” said Neophytou. The problem was compounded by the huge private and public debt as well as the high number of non-performing exposures, he added.

Another worrying development, highlighted by both Petrides and Neophytou, was the primary deficit recorded in the first half of 2023, which stood at €126.3 million. Neophytou pointed out however that in the second quarter, the deficit was a staggering €283 million and the total for the six months was reduced thanks to the surplus of the first quarter.

“The rate of growth of the deficits from month to month is, unfortunately, explosive,” said Neophytou, predicting that in the future “new burdens (Gesy) are coming and certainly more expensive foreign borrowing.”

The government had tried to downplay the significance on the latest indicators, in a statement issued by the finance ministry which said Cyprus’ rate of growth remained the third highest in the EU and was higher than the Euro zone average of 0.9 per cent.

The finance ministry acknowledged, however, that the latest figures indicated a bigger slowdown than the original forecasts for the 2023-25 period. Taking into account these indicators and “taking into account the continuing sanctions against Russia, the forecast for the rate of growth of GDP for the whole of 2023 could be revised marginally downwards,” said the ministry.

Neophytou was not impressed with the government’s comparisons with the growth rates of other EU member-states. “The comparison with the rest of the European countries on a piecemeal basis, without taking into account all the indicators, does not constitute a serious economic approach,” he said.

With GDP contracting, state revenue is also affected. For example VAT revenue had fallen from €326.4 million in May to €202.8 million in June.

There are tough times ahead, according to both Petrides and Neophytou. “Contracting GDP will affect the revenue of the state with a big impact on public finances, the public debt and the evaluations (by rating agencies) of the state,” said the former finance minister in his tweet.

Neophytou said the worse was yet to come, considering the contraction of GDP was always “a precursor to crisis”, if the government did not act.

“If the government does not abandon the communications games and does not face the issue of the economy with seriousness and a sense of urgency, we will be faced with recession and fiscal deficits on an annual basis,” warned Neophytou.