The International Monetary Fund said that Cyprus’ economy will expand at a slower pace until 2012 as global growth slows down, and it will post higher budget deficits compared to previous forecasts. The IMF cut its growth forecast for the economy to zero in 2011 and to 1 per cent in 2012, from an April forecast of 1.7 per cent and 2.2 per cent respectively.

The revised figures are included in September’s ‘Regional Economic Outlook: Europe – Navigating Stormy Waters’, which was published last week on the IMF’s website. “The September 2011 World Economic Outlook projects real gross domestic product growth worldwide at 4 per cent for 2011 and 2012, about half a percentage point lower than projected in the April 2011 edition,” the report said.

The euro area’s economic growth will slow down from 1.6 per cent this year to 1.1 per cent in 2012. The latest forecasts take into account recent shocks the world economy has suffered, such as the earthquake and tsunami in Japan, the effect of the Arab Spring on energy prices, the weakened economic growth in the US and the recent stand-off over the country’s debt ceiling, as well as the ongoing European debt crisis. The IMF revised its forecast for Cyprus’ fiscal deficit upwards from 4.5 per cent of the economy to 6.6 per cent for this year and from 3.7 per cent to 4.5 per cent for 2012. Therefore, next year’s fiscal deficit will be almost twice as much as the finance ministry’s latest forecast, according to the IMF.

On 28 September Finance Minister Kikis Kazamias revised a previous budget deficit forecast for 2012 of below 2 per cent of GDP to 2.3 per cent, which is conditional to the approval of a fiscal package by parliament. He also revised his estimate for this year from a previous 5.5 per cent to 6.5 per cent, which is close to the IMF’s forecast. The fiscal consolidation package includes an increase of value added tax rate by 2 percentage points to 17 per cent. Kazamias’ economic growth forecast is much closer to that of the IMF. In the same September announcement, the minister said Cyprus’ economy could grow up to 0.5 per cent this year and up to 1.5 per cent in 2012. Consumer prices will increase 4 per cent this year and 2.4 per cent next year, according to the IMF report. The minister of finance has not disclosed his inflation forecast yet.

Source: Cyprus Mail