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Cyprus News Agency: News in English, 12-05-11
CONTENTS
[01] EU Commission on Cyprus` economic activity
[01] EU Commission on Cyprus` economic activity
After a stronger first half in 2011, when Cyprus' GDP rose by 1.5%
thanks to an exceptionally good tourist season, economic activity
in the island was badly affected by the accident in July 2011, that
destroyed the Vassilikos power station, the European Commission notes
in its Spring Forecast, issued today. A huge blast in the naval base
"Evaggelos Florakis" damaged on July 11 last year the nearby Vassiliko
power plant, which accounted for half of the island's total electricity
generation capacity.
According to the report, domestic demand, traditionally the main driver
of growth, decreased considerably in 2011. Tightening bank lending
conditions, along with a worsening labour market outlook and weakening
confidence, weighed on private consumption. In addition, subdued foreign
demand for housing and the restructuring of corporate balance sheets
kept investment on a correction path for the fourth year in a row. On
the other hand, the external sector made a positive contribution to
growth. Revenues from tourism increased by 13%, driven by political
instability in competing Mediterranean tourist destinations and an
increased flow of arrivals from emerging markets such as Russia.
Nevertheless, it is added that with a current-account deficit above 10%
of GDP, the external imbalance remained sizeable. The study predicts
for 2012 that GDP will contract by 0.8%, due to a fall in domestic
demand and the weaker external environment, notably including persistent
financial market uncertainty. Private consumption will be restrained by
the squeeze in disposable income, mainly among public sector employees,
exerted by the fiscal restriction incorporated in the Budget Law 2012
adopted on 16 December 2011, as well as by the rise in unemployment to
unprecedented levels.
On public finances, the Spring Forecast notes that the government faces
severe financing constraints. It is added that the deficit increased
from 5.3% in 2010 to 6.3% in 2011, mainly due to lower revenues in
the wake of the slowdown of economic activity and reduced corporate
profitability. Driven by the recent consolidation efforts, the government
deficit is set to narrow to 3.4% of GDP in 2012 and 2.5% GDP in 2013. On
this basis, and in view of shrinking economic activity this year, the
government debt-to-GDP ratio should remain on a rising trend and reach
about 76% in 2012, mainly reflecting the stock-flow adjustment increasing
debt due to disbursement in EFSF and ESM.
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