“With the restructuring of the banking system and the gradual easing of the non-performing loans situation, growth is expected to accelerate,” the Finance Ministry said in a statement on its website. “Taking the better-than-expected 2015 performance, the Finance Ministry’s economic growth forecast for 2016 is around 1.8% in real terms that will accelerate in 2017 and 2018 to 2% to 2.2%”.
The Finance Ministry expects the economy to grow 1.4% in 2015. By comparison, international creditors expect Cyprus’ economy to grow 0.5% in 2015, before growth accelerates to 1.4% next year.
The improved macroeconomic environment is expected to be more attractive to foreign investment, and combined with a ‘neutral fiscal policy’ following the consolidation of public finances, will help further stimulate growth, which in turn will allow the unemployment rate to drop from 16% in this year to 15% in 2016, 13.7% in 2017 and 12.4% in 2018.
On the other hand, the Finance Ministry said that potential risks, including a deterioration in the non-performing loan situation in the banking sector, a worsening in the European Union’s relation to Russia and the course of Greece’s economy, may destabilise the economy.
The Finance Ministry expects the inflation rate to accelerate to 0.9% in 2016 from -1% this year before speeding up to 1.3% in 2017 and 1.5% in 2018. The Finance Ministry’s inflation forecasts are in line with those of the troika of the European Commission, the European Central Bank and the International Monetary Fund, which supervises bailouts in the euro area.
While the Finance Minister said on Wednesday that the government will generate a fiscal shortfall of 0.5% of the economy this year, the troika is less optimistic forecasting a budget gap of 0.9%. In 2016, the government is expected to post a 0.1% fiscal deficit, before generating a fiscal surplus of 0.5% in 2017 and 1.1% a year later.
The government’s primary balance is expected to show a surplus of 1.9% of gross domestic product in 2015, which will increase to 2.4% next year, 2.8% in 2017 and 3.3% in 2018, the Finance Ministry said, citing the forecasts of international creditors.
Source: Cyprus Mail
