‘Without measures downward spiral will continue’

THE coming year will be very difficult for the Cypriot economy, the finance ministry said yesterday, as it stressed the urgent need for measures to reverse the downward spiral.
The European Commission said on Wednesday it expected Cyprus to stay in recession through this year and next with higher unemployment persisting well into 2014.
According to the EU’s autumn forecast, the island will see its €17.9 billion economy contract by 2.3 per cent in 2012 and by another 1.7 per cent in 2013 while the budget deficit will reach 5.3 per cent this year and  5.7 per cent in 2013.
Unemployment was set to reach 12.1 per cent in 2012, 13.1 per cent in 2013 and spike to 13.9 per cent in 2014, the Commission said.
The finance ministry said yesterday that the Commission’s forecast did not take into consideration any additional measures that would be put in place.
In a written statement the ministry said it expected the economy to contract by 2.2 per cent this year and the deficit to reach 5.0 per cent of GDP.
 The forecasts “show that 2013 would be a difficult year for the Cypriot economy but a gradual improvement is expected during 2014 and 2015,” the ministry said.
But it warned that without adopting any measures the trends will continue.
“And this demonstrates the urgent need to take measures,” the ministry said.
Those measures will be the focus of negotiations starting today between the government and teams representing international lenders, the troika, who arrived yesterday and will resume negotiations with the government today. .
According to the ministry, the discussions will be conducted at technocratic and political levels and will focus on, among others, structural issues, the macroeconomic framework and the island’s financial sector.
The two sides have exchanged views on various matters but disagreements remain on matters such as privatisations and bank recapitalisation.
The ministry said negotiations will continue with the aim of achieving convergence.
Any measures agreed with the troika will be incorporated in next year’s draft budget, expected to be submitted to parliament in around 10 days.
If there is no agreement, the government plans to submit the budget with the counter-proposals it made to the troika.
“Our intention is to incorporate in the 2013 budget the changes we proposed to the troika or any others that will be known to us in the next 10 to 12 days,” Finance Minister Vassos Shiarly said, adding that he expected the draft to be submitted around November 20.
The minister added that it was not the government’s intention to delay submitting the budget, usually done late September or early October, but it was dictated by the conditions.