SOURCE: Financial Mirror
Central Bank of Cyprus Governor Athanasios Orphanides said that a special lesson for Cyprus from the global financial crisis is that, due to the adoption of the Euro, the worst for the country has been avoided, adding that although the vibrations from such a convulsion cannot leave Cyprus totally untouched, appropriate planning and prioritisation can lead to economic normality.
Speaking on the global financial crisis and its adverse consequences on the Cypriot economy, at an event organised by the Larnaca Chamber of Commerce and Industry, Orphanides analysed the negative financial scene and its consequences, as well as projections concerning the Eurozone and the growth rate of the Cypriot economy.
Referring to Cyprus, he said the degree of deterioration of the negative consequences and their expansion to various sectors, such as tourism and constructions, would depend on whether the global crisis would continue or not.
”We must keep in mind that, in the era of globalisation, it is impossible for the economy of any country to remain untouched by the unrest to the degree we are experiencing today. Especially, if we take into consideration the fact that the Cypriot economic activity is based to a great extent on foreign demand. On the other hand, of course, it must not elude us that any negative consequences for Cyprus will be much milder than those we would have had with the small and open economy had we not joined the Eurozone,” he added.
Orphanides noted that, ”taking into consideration the facts at this moment, the projections of the Central Bank are that a significant deceleration will be recorded in the real GDP of our country in 2009, with the growth rate being around 2%,” adding however that ”the degree of uncertainty is very large and for this reason various analysts come up with different growth scenarios.”
He pointed out that ”the recovery of the economic activity is predicted, according to the central scenario, to begin in 2010, without ruling out a protraction of the recession in case of a more intense than expected today global economic deceleration.”
Orphanides also said that, taking into consideration the recent high rate of lending in Cyprus, a mild corrective deceleration of the economic activity leading to the shrinkage of imbalances should not be considered to be negative, and that sustainable development can be maintained.
The Governor pointed out that emphasis should be given to development projects, which would bring about the highest added value to the economy and would increase the productivity of Cypriot businesses.
He added that ”any measures taken to tackle the crisis must be carefully planned, because wrong reactions may worsen the long-term prospects of the economy and further erode the competitiveness of Cypriot businesses.”
Regarding the banking sector, Orphanides said that it remains healthy, despite the global situation and the problems faced by other countries, reflecting the correctness of the Central Bank’s policy.
”The fact that the Cypriot banks have been exposed neither to risks of lack of liquidity nor excessive investment dangers, is due to the monitoring framework of the Central Bank, which although considered strict at times, has functioned as a shield for our banking system,” he added.
Orphanides assured that the Board of Directors of the Central Bank was closely monitoring macroeconomic developments and noted that ”we are always ready to take further measures, whenever deemed necessary.”