Business & Economy

CYPRUS: Economy to grow in 2019 but at a slower rate of 3.1% GDP

31 January, 2019

The Cypriot economy is forecasted to continue to grow at robust rates in 2019, albeit at a somewhat slower pace compared to 2018, according to University of Cyprus economists.

In 2018, real GDP is estimated to have increased by 3.8% while this year growth is forecasted to decelerate as Cyprus GDP is projected to grow by around 3.1%.

“The main drivers of the outlook include robust activity and employment growth in the previous quarters, supportive domestic financial conditions (e.g. low lending interest rates, deleveraging, declining NPLs), and high levels of domestic economic confidence,” said UCY’s Economics Research Centre.

It said the slowdown in the growth momentum projected for 2019 is mainly driven by a weaker performance of some domestic economic indicators as well as by higher uncertainty in the external environment such as global growth, international trade policies and Brexit.

UCY said there were downside risks to the outlook due to domestic factors which include the high levels of private debt and NPLs relative to the size of the economy; the high level of public debt together with the stronger connection between bank and sovereign risk, after the sale of the Cyprus Cooperative Bank.

Experts said there were “potential additional fiscal costs” from the publicly financed scheme for vulnerable borrowers with mortgages (Estia) and/or the newly-established state-owned asset management entity.

“Fiscal risks may arise from (i) the introduction of the National Health System, (ii) faster-than-planned increases in the public sector wage bill, and (iii) delays in the implementation of structural reforms (e.g. judicial system, public administration),” said the outlook.

Downside risks stemming from the external environment include: higher uncertainty, faster depreciation of the British pound and weaker-than-expected growth in the UK in the event of no-deal Brexit; slower-than-expected growth in the euro area as a result of weaker global trade; a slowdown in Russia due to lower oil prices; intensified competition from other tourist destinations.

However, Cyprus could benefit from a “faster reduction in the stock of NPLs, and a higher degree of materialisation of investment plans (e.g. investments relating to tourism, property developments, energy)”.