Cyprus’s economy will shrink this year after at least five years of growth as the global slowdown dents the Mediterranean island’s tourism, construction and real estate industries.
The economy of the divided island, the second-smallest of the countries using the euro, will shrink 0.5 percent this year, and grow by the same amount next year, according to the 2010 budget draft, posted on the Cypriot Press Ministry’s Web site. The economy expanded 3.6 percent last year and around 4 percent annually since 2004.
“Cyprus is inevitably being affected by the global economic crisis, in tourism, foreign services and the market for summer homes,” Finance Minister Charilaos Stavrakis said, according to a separate statement on the Web site. In May, the minister said growth in the country would be around 1 percent, lower than a previous forecast of 2 percent.
Tourist arrivals to Cyprus are down about 11 percent in the first eight months of the year, according to the Nicosia-based Cyprus Statistics Service. Arrivals from Britain, about half of all foreign visitors to the island, dropped 11.5 percent in August, the height of the summer season.
Cyprus will have a budget deficit of 2.9 percent of gross domestic product as it loses income from real estate, corporate and value-added taxes. The ratio is forecast at the same level next year, keeping to a 3 percent ceiling imposed by the European Union for countries that use the euro. The country posted a surplus of 0.9 percent last year.
Revenue from value-added tax fell 11 percent to the end of August, as a slump in overseas visitors and rising unemployment cut spending, the Cypriot customs and excise department said yesterday. Unemployment is forecast to rise to 5.5 percent this year and 6.5 percent next year. Average annual inflation, seen at 1 percent in 2009, will increase to 2.5 percent next year.