NICOSIA, Cyprus—Cyprus' Central Bank governor said on Monday that the east Mediterranean island could see it's economy shrink in 2010 for the second consecutive year.
Athanasios Orphanides told legislators that the economy remains in recession and that a contraction cannot be ruled out for this year.
Orphanides' remarks contrast a finance ministry projection that the island's economy to grow by 0.5 percent this year after a contraction of 1.7 percent in 2009.
The Central Bank chief said he's "particularly concerned" over higher inflationary pressures relative to other euro zone countries that are "undermining the economy's competitiveness."
European Union-member Cyprus joined the euro zone on Jan. 1, 2008.
Orphanides also warned of a "dangerous" rise in public expenditure to 47.6 percent of gross domestic product in 2010 and urged immediate restraint.
"The primary aim is to urgently calibrate fiscal policy in order to bring public finances back to a sustainable level without undermining the country's growth-oriented course," he said.
Cyprus' Finance Minister Charilaos Stavrakis last week unveiled a string of measures aimed at shrinking a bloated public sector, cracking down on tax dodging and curbing social transfers in order to halve the island's 6 percent fiscal deficit by 2013.
Stavrakis said the stability program -- sent to Brussels for EU approval earlier this month -- will slash 4,000 government jobs over the next three years. State operating expenses will be rolled back by euro150 million by next year.
