29/01/2013 06:52
Uncertainty about the Cypriot memorandum may lead the Cypriot economy to deeper recession in 2013, the Economic Research Centre of the University of Cyprus estimates.
The Center believes that this year’s GDP will be greater than the 3.5% projected by the Cypriot authorities and the creditors of Cyprus.
It urged the government to send the right messages about readiness for reforms, such as privatizations and adoption of the property tax.
The Centre believes that the growth rate of real GDP in the fourth quarter is expected to be -2.3%, with the forecast for the whole 2012 to stand at -2.1%.
“Furthermore, combining econometric analysis of historical data with a fiscal multiplier that incorporates the negative impact of fiscal consolidation measures in economic activity expected from the implementation of the memorandum provides for GDP growth of -2 .4% and -3.9% in 2012 and 2013 respectively”.
The Centre says that there is a risk of underestimating the negative effects on economic activity and due to further loss of confidence among business and consumers from the prolonged uncertainty about the date of implementation and the content of the memorandum, worsening of the domestic credit conditions due to the recapitalization needs of banks and deterioration of the external environment, especially the economies of Cyprus’s trading partners, such as Greece and the United Kingdom.
"The prolonged uncertainty about whether and when the memorandum will be officially implemented and, especially, the uncertainty related to the banking sector and, consequently, the sustainability of public debt could lead to greater decline in the growth rate of the economy in 2013”, the memo said.
"We believe that it is an urgent need to send a message of readiness to the local and international markets for measures and reforms that would correct the structural weaknesses and would reduce the inefficiency of the public sector", it said.
"Of course, such a message is not the refusal to examine possible privatizations, pretending that the 'taxes' paid by the consumers of the products of the semi-governmental businesses are “profits".
"Nor similar messages are sent by negligence (if not unwillingness) to introduce a rational system of taxation of real estate, when from elementary economics it emerges that property tax is the less damaging economically (and often more socially equitable) way of transferring money from the private to the public sector”, the memo concluded.
The Center believes that this year’s GDP will be greater than the 3.5% projected by the Cypriot authorities and the creditors of Cyprus.
It urged the government to send the right messages about readiness for reforms, such as privatizations and adoption of the property tax.
The Centre believes that the growth rate of real GDP in the fourth quarter is expected to be -2.3%, with the forecast for the whole 2012 to stand at -2.1%.
“Furthermore, combining econometric analysis of historical data with a fiscal multiplier that incorporates the negative impact of fiscal consolidation measures in economic activity expected from the implementation of the memorandum provides for GDP growth of -2 .4% and -3.9% in 2012 and 2013 respectively”.
The Centre says that there is a risk of underestimating the negative effects on economic activity and due to further loss of confidence among business and consumers from the prolonged uncertainty about the date of implementation and the content of the memorandum, worsening of the domestic credit conditions due to the recapitalization needs of banks and deterioration of the external environment, especially the economies of Cyprus’s trading partners, such as Greece and the United Kingdom.
"The prolonged uncertainty about whether and when the memorandum will be officially implemented and, especially, the uncertainty related to the banking sector and, consequently, the sustainability of public debt could lead to greater decline in the growth rate of the economy in 2013”, the memo said.
"We believe that it is an urgent need to send a message of readiness to the local and international markets for measures and reforms that would correct the structural weaknesses and would reduce the inefficiency of the public sector", it said.
"Of course, such a message is not the refusal to examine possible privatizations, pretending that the 'taxes' paid by the consumers of the products of the semi-governmental businesses are “profits".
"Nor similar messages are sent by negligence (if not unwillingness) to introduce a rational system of taxation of real estate, when from elementary economics it emerges that property tax is the less damaging economically (and often more socially equitable) way of transferring money from the private to the public sector”, the memo concluded.
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