Data released by the Statistical Service and analysed by the Financial Mirror show that gross value added accelerated slightly from 3.4% in 2004 to 3.6% in 2005.
Gross domestic product (GDP), which includes import duties, VAT and an indirect measure for finance, rose by a similar 3.8% in 2005.
The main drivers of growth last year were the two categories of “finance and real estate” and “construction”, with finance showing faster growth.
Output in the finance and real estate sector rose by 5.3% for the whole of 2005, up from 3.8% in 2004 and much faster than overall gross value-added growth of 3.6%.
Finance accelerated rapidly
Much of the growth in the finance and real estate sector is likely to have come from real estate: the figures also show that gross output in the construction sector rose by 5.9% for the whole year.
However, construction did not grow as quickly in 2005 as in 2004, when it rose by 6.5%.
Therefore, if “finance and real estate” growth accelerated at a time when “construction”growth slowed, then the “finance” part must have accelerated even more rapidly. This makes sense, given the rapid improvement in profitability of the main banks during 2005 and the late surge in the stock market.
The same figures show that value added in the public sector also accelerated, from 1.7% in 2004 to 3.8% in 2005.
This is probably because the government did not have to squeeze spending quite so much in 2005 as in 2004 when it had a much larger budget deficit to deal with.
Tourist categories fare less well
The catch-all category that includes much of the tourism industry as well as wholesale and retail trade saw a slowdown in 2005.
Given that retail sales were quite buoyant for much of 2005, it must be assumed that this slowdown was concentrated in hotels and restaurants–where a pick-up in tourist arrivals was not matched by an equal pick-up in expenditure–and perhaps transport, where Cyprus may be suffering from a reduction in the size of its shipping fleet.
Households spending the fastest
Figures measuring GDP on a different basis–by expenditure rather than output–show that households spending rose the most in 2005–by 4.8%. However, this was slower than the 6.9% recorded in 2004.
Net exports (ie, once imports are subtracted), actually acted as a drag on growth according to Financial Mirror calculations, knocking 0.3% of growth in 2005. One good piece of news was that this was a lot less of a drag on growth than in 2004, when tax-cuts prompted a massive influx of new cars.
Capital expenditure slows sharply
Finally, figures showing capital expenditure by category show a sharp deceleration, from 10% in 2004 to 2% in 2005.
The slowdown can be explained by three factors.
First, this category appears to include purchases of cars, and car sales took a dive after the tax-related boom of purchases in 2004.
Second, machinery investment also seems to have tailed off.
Third, as mentioned above, construction investment did not grow as fast in 2005 as in 2004, although the figures indicate that construction outside the housing sector accelerated.
Fiona Mullen
