The Cypriot economy will shrink by 0.5 per cent this year following at least five years of growth as the decline in the global tourism market, construction industry and real estate hits the struggling island nation

The economy of the split nation, the second-smallest of all countries using the euro, will contract by 0.5 per cent this year and should regain the same amount by 2010, according to a budget draft for next year posted on the Cypriot Press Ministry’s website.    The economy went up by 3.6 per cent last year and around 4 per cent per year since 2004.

On the website, Cypriot Finance Minister Charilaos Stavrakis said that the country was inevitably being affected by the global economic crisis in tourism, foreign services and market for summer holiday homes.  In May, the minister predicted growth of tourism to be around 1 per cent, lower than last years forecast of 2 per cent.

The drop in tourist volume is down 11 per cent in the first eight months of this year, according to the Nicosia-based Cyprus Statistics Service, with holidaymakers from Britain, making up about half of all visitors to the island, dropping by 11.5 per cent in August, the peak travel season.

Cyprus will also suffer from a budget deficit of 2.9 per cent of gross domestic product, due to losses from real estate, corporate, and value-added taxes.  It is predicted that the ratio will be at the same level for next year as well, maintaining a 3 per cent ceiling imposed by the European Union countries that use the euro.

The revenue earned from value-added tax also dropped 11 per cent for the year to the end of August, as a slump in foreign tourists and rising unemployment cut spending, The Cypriot customs and excise department said yesterday.  Unemployment in Cyprus is expected to rise to 5.5 per cent this year and 6.5 in 2010, and inflation for 2009 was seen at 1 per cent and predicted to rise by 2.5 per cent next year.