10/08/2006 09:36
In its latest report for Cyprus, the Economist Intelligence Unit (EIU) supports that if hostilities in Israel and Lebanon continue for a long period it would result in a higher import bill from higher oil prices and lower tourism receipts. The EIU believes that the government’s forecasts on GDP growth are far too optimistic.
Specifically, the EIU anticipates that GDP growth will stand at 3.2% in 2006 against a forecast of 4.2% by the Finance Ministry. “Some of the planned consolidation measures may be watered down or delayed. However, the government has leeway to meet its budget targets by postponing spending plans”, it reported.
Maastricht criteria
According to the EIU analysts, “the average rate of inflation will be 2.6% in 2006 and 2.3% in 2007”. As for the actual deficit, “it will be slightly lower than the government’s targets, with a general government budget deficit of 1.7%”. Unemployment will reach 4.2% in 2006 and 4.3% in 2007.
Interest rates
The EIU anticipates that the Central Bank will replicate further interest rate rises in the euro area. “Under our current forecast, this implies a 100 basis point increase by the end of 2007”. “Yields on Treasury bill auctions in early July suggest that the markets anticipate a rise”, the EIU reported.
It is worth noting that since June 9, 2006, the Central Bank of Cyprus has kept its interest rates unchanged at 4.25%. The European interest rates, on the other hand, increased by 0.25% to 3% on August 3, 2006.
Specifically, the EIU anticipates that GDP growth will stand at 3.2% in 2006 against a forecast of 4.2% by the Finance Ministry. “Some of the planned consolidation measures may be watered down or delayed. However, the government has leeway to meet its budget targets by postponing spending plans”, it reported.
Maastricht criteria
According to the EIU analysts, “the average rate of inflation will be 2.6% in 2006 and 2.3% in 2007”. As for the actual deficit, “it will be slightly lower than the government’s targets, with a general government budget deficit of 1.7%”. Unemployment will reach 4.2% in 2006 and 4.3% in 2007.
Interest rates
The EIU anticipates that the Central Bank will replicate further interest rate rises in the euro area. “Under our current forecast, this implies a 100 basis point increase by the end of 2007”. “Yields on Treasury bill auctions in early July suggest that the markets anticipate a rise”, the EIU reported.
It is worth noting that since June 9, 2006, the Central Bank of Cyprus has kept its interest rates unchanged at 4.25%. The European interest rates, on the other hand, increased by 0.25% to 3% on August 3, 2006.
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