Cyprus & World News

ECONOMY: European Commission expects Cyprus GDP growth of 3.6 pct

11 July, 2018

Cyprus’ overall, real GDP growth is expected to reach 3.6% this year and tilt downwards at 3.3% in 2019, the European Commission said in its interim summer forecast on Thursday.

The economy expanded by 3.9% in 2017, a nine-year high, and Cyprus’ cyclical upswing continued in early 2018, posting 3.8% (y-o-y) growth in the first quarter.

“Growth was driven by solid domestic demand and, lately, exports, consumer sentiment continued to improve, while business confidence across major sectors either increased or levelled off, suggesting continued momentum in the coming quarters,” said the Commission.

It said the composition of growth shifted somewhat in early 2018.

Investment, after breaking an historic high in the last quarter of 2017, fell in the first quarter of this year, goods exports, by contrast, more than doubled compared to the previous quarter and shipping sector activity was at the heart of these pronounced changes, with ship acquisitions moderating, while ship sale/deregistration reached record high levels.

“Excluding shipping activity, the underlying trends remained broadly stable and this compositional shift is expected to be temporary,” said the EC.

Despite a subdued export of services "this soft patch is likely to be overcome in the quarters ahead thanks to the marked increase in tourist arrivals already recorded in the spring months as well as the completion of new hotels for tourists".

Private consumption is also predicted to expand, supported by rapidly rising employment and gradually increasing wages, while survey data reveal that hiring is set to continue strongly in the near future, giving a further boost to disposable income.

The Commission said the financial sector would benefit from the Co-op sale to Hellenic Bank by establishing a more stable outlook.

"Cyprus’ struggling financial sector, which has been a drag on the economy since the crisis years, is consolidating. Once finalised, the sale of the second largest bank, Cyprus Cooperative Bank, is expected to reduce uncertainties surrounding the macroeconomic outlook."

The forecast also pointed to weak inflationary pressures with the HICP inflation dropped during the first four months of the year and turned positive only in May.

“The decrease in prices was rather broad-based, reflecting strong competition among retailers in several sectors and subdued wage dynamics.”

HICP inflation is expected to be positive for the year due to increasing services and energy prices and it is expected to pick up further in 2019, mainly because of higher oil prices and the gradual build-up of domestic price pressures amid rapid economic recovery.