Cyprus Finance Minister Constantinos Petrides told CNA on Monday that the government maintains its projection that the economy would shrink by 11 percentage points year on year due to the shock caused by the coronavirus.
Cyprus GDP grew by 0.8% in the first quarter but shank by an annual 11.9% in Q2 that included the full effects of a two-month lockdown that hampered financial activity while travel restrictions wiped out tourist arrivals to Cyprus.
“Having analysed the data of the first half of 2020 our projection remains the same, compared with the previous April, our baseline scenario provides for a GDP contraction close to 7% for 2020,” Petrides said, noting that the Cypriot GDP in the six months of 2020 shrank by an 5.5% year on year “which is close to our projections.”
However, Petrides warned that projections are characterized by a large degree of uncertainty due to the Covid-19 crisis.
Petrides said that the Finance Ministry also retained the projections for a fiscal deficit amounting to 4.3% of GDP with the deficit in the first half of 2020 amounting to €804 million. The two-month lockdown, reduced income from tourism as well as increased government support measures has taken a heavy toll in the government balance.
But Petrides said that government support measures have yielded results as domestic consumption remained at relatively high levels.
“Therefore deterioration came from external demand which due to the epidemiological data is out of the government’s control,” he added.
For the first half tourist arrivals plunged by 84.3% year on year, affected by travel restrictions imposed to limit the spread of the virus. Cyprus’ tourist arrivals were severely affected by travel restrictions for tourist coming from the UK which is Cyprus main tourist market. Tourist arrivals from UK became possible since August 1 when tourist can visit Cyprus following a negative PCR test for Covid-19 but tour operators said they cannot carry out flights to Cyprus while the negative test criterion is in place.
Projection for unemployment also remains the same with jobless increasing to 9% by year-end compared to 7.1% in end-2019, Petrides said, noting however that the rate of unemployment in the first six months of 2020 increased to 7% compared with 6.7% in the respective period of 2019.
“This is a marginal increase but we are not complacent as economic impact of a crisis come with some delay,” he added.
Furthermore, Petrides underlined that the coming period would be crucial in terms of public debt management, as Cyprus debt rose to 120%, as the government has issued new bonds in a bid to strengthen is cash reserves to tackle the increase spending needs due to the crisis.
Petrides said that public debt to GDP is estimated to decline to 116.9% of GDP or €23.4 billion in the end of 2020.
“Public debt cannot over the 120% of GDP limit and we must be cautious so that the government policy for maintaining public debt in a downward trend unchanged,” he said.
Petrides also fended off calls for cuts in the public spending mainly in the public sector wagebill, stating that if spending cuts were implemented the recession would be larger.
Furthermore, the Cypriot Finance Minister also said that the Ministry began discussions with the other Ministries in a bid to draft a national reform and investment plan which is prerequisite for the absorption of the support by the EU pandemic recovery fund (Next Generation EU).