ECONOMY

Tourism slump hits Cyprus economy

NICOSIA – Cyprus’s economic growth will slow to 2.5 percent this year, from 3.7 last year, if tourist arrivals slump as expected, the central bank said yesterday. «Projected economic growth in 2002 of 2.5 percent is based on expectations of a possible decline in tourism by around 5 percent,» central bank governor Afxentis Afxentiou told reporters. However, a report by the Monetary Policy Committee (MPC), which advises the central bank on interest rates, said December tourism arrivals were down by 20.1 percent month-on-month. Tourism represents some 20 percent of gross domestic product. The MPC recommended a «wait and see» stance and advised that interest rates remain unchanged for the time being at 5.5 percent for advances and 2.5 percent for deposits, respectively. The fiscal deficit was expected to remain close to 3.0 percent of GDP during the year, the MPC said. Fiscal deficit projections prepared by the Finance Ministry last October put the shortfall in 2001 at 2.6 percent and forecast it as narrowing to 2.4 percent in 2002. Tourism has suffered globally since the September 11 attacks in the United States and an uncertain economic outlook has also deterred many potential tourists. Afxentiou said inflation was forecast to hover between 2.0 and 2.5 percent for 2002, higher than the 2001 figure of 1.97 percent. That assessment did not take into account an expected increase in value added tax (VAT) to at least 13 percent from its present level of 10 percent.