The Cypriot economy grew by a modest 0.5% in 2011, however GDP is projected to contract by 0.5% in 2012 due to weak domestic demand, according to the European Commission Interim Forecast released Thursday in Brussels.

According to the Forecast, the downward revision relative to the autumn 2011 forecast is explained by the worsening of the external environment and by the adoption of additional consolidation measures, not accounted for in the autumn 2011 forecast.

Furthermore, the deterioration in financial markets and the tightening of credit conditions may raise the cost of financing to the private sector and limit access to it.

The Forecast notes that recovery should set in slowly, during the second half of 2012, with the improvement of the external environment, the start of the tourist season and the resumption of investment projects as uncertainty dissipates