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Cyprus Finance Minister Sees Economy Shrinking

Vassos Shiarly

Cyprus will remain in recession in 2012, its finance minister said on Monday, with economic output retreating by up to 1.5 percent in the euro zone member state which recently sought a bailout.
Vassos Shiarly, Cyprus΄s finance minister, also said lower growth was feeding into higher deficits, which by the latest projection was anticipated to hit 4.5 percent of gross domestic product in 2012, Reuters reported.
At present, he said, Cyprus΄s 17 billion euro economy was expected to contract “between 1 and 1.5 percent” this year. Authorities had earlier projected growth flatlining.
“This is not a situation which affects just Cyprus … and it is unavoidably leading to an economic contraction,” Shiarly told journalists, referring to a Europe-wide downturn.
“It is important to bring order to our public finances for us to create conditions fostering growth.”
The projected fiscal shortfall is a massive jump from promises of a deficit of no more than 3 percent earlier in the year.
Shiarly said he expected about one point would be shaved off the deficit forecast with fiscal consolidation measures generating savings of between 150 and 200 million euros.
But those measures have been delayed considerably either by the government wanting a consensus among the island΄s powerful labour unions on issues like pensions reform, or from a hostile opposition-controlled parliament rejecting government tax bills.
Cyprus, the euro zone΄s third smallest economy, has struggled to keep its head above water since its exclusion from international capital markets a year ago and massive exposure of its two largest banks to Greece.
The country, which now holds the rotating EU presidency, was forced into seeking a bailout in June to buffer its banks. It has also sought a bilateral loan from Russia, which came to Cyprus΄s aid in late 2011 with a 2.5 billion euro loan to cover fiscal requirements.
Two visits by the troika, a team of international lenders made up of the European Commission, the IMF and the European Central Bank, have been inconclusive. Shiarly said new contacts on September 17 would define the dates of the next visit.
“There are some areas where our side has different positions to those of the troika, but I wouldn΄t say we are in disagreement,” Shiarly said.
(source: Reuters, Capital)

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