Cyprus sees slower growth in 2009

Cyprus expects its economy to expand by around 3.7 percent in 2009, the eurozone newcomer said on Wednesday, saying a drop in demand tempered the outlook for next year. The Mediterranean island expects growth of close to 4.0 percent in 2008. Authorities said there had been a tapering off in private demand in recent months and that was now factored into the economic outlook for next year.
"We do expect a slowdown in consumption," Finance Minister Charilaos Stavrakis told a news conference. The decline started four months ago with the rate of decline accelerating in September, he said. Cypriots are generally high spenders, but data cited by Stavrakis suggested the global financial turmoil appeared to be finally catching up with them; the rate of growth in VAT earnings, a sales tax, had fallen to 10 percent in September compared to growth rates of 18-20 percent at the start of the year, the Cypriot official said.
"We do have high rates of consumption which is mainly due to the high percentage of borrowing by households and businesses, and that certainly carries some risk, so a small reduction (in credit) to more normal levels may be a positive development," Stavrakis said.
He said he expected Cyprus to produce a fiscal surplus of 0.7 percent of gross domestic product in 2009, versus a surplus seen exceeding 0.5 percent of GDP in 2008. The island's cabinet approved its 2009 budget on Wednesday, the first by the Communist-led administration which won elections last February. No new taxes were envisaged.
Authorities said they planned to cut corporate tax to semi-government organisations - ranging from the island's main telecoms provider to the electricity utility - to 10 percent from 28 percent to create a level playiield with private enterpe.
"In spite of an unprecedented global economic crisis the rate of growth of the Cypriot economy remains extremely satisfactory," Stavraaid. Cyprus's public debt was forecast to fall to around 45 percent of GDP next year from this year's 49 percent. Cyprus's budget will be presented to parliament for approval in early October. It shows a 10.9 percent increase in spending to 7.4 billion euros, on an estimated 4.7 percent increase on revenue to 6.4 billion euros.