The Cyprus economy witnessed a sharp slowdown in the first quarter of 2006, according to the latest figures released by the Statistical Service, with pessimists questioning whether the economy can reach even 3% growth this year, let alone the government’s forecast of 4% on which it based its budget.
On a year-on-year, non-seasonally adjusted basis, real GDP rose by 3.3%: exactly the growth rate forecast by the Financial Mirror three months ago, albeit based on different quarter-on-quarter numbers that have now been revised.
The year-on-year growth rate was the slowest for a just over two years.
On a seasonally adjusted basis, GDP rose in real terms by 0.4% over the previous quarter, compared with a growth rate of 0.7% in the fourth quarter of 2005 and 1.1% in the third quarter.
The quarter-on-quarter growth rate in the first quarter was the slowest rate for 12 quarters, according to Financial Mirror analysis.
The main factor bringing the growth rate down is the fall of tourism arrivals, which is partly but not entirely the result of the timing of Western Easter.
The Statistical Service noted indicative indices on the performance of various economic activities during the first quarter of 2006, including a 15.1% year-on-year fall of tourist arrivals and a 9.4% fall in tourism revenue. Manufacturing volume fell by 1.94% year on year.
Other indicators remain fairly buoyant, however. Retail sales volumes rose by 5.5% in January-February. The telecommunications index was up 3.5%, electricity production up 7.6%, financial intermediation services up 19.5%, total imports up 11.7% and total exports up 7.2%.
Company profits have also been strong.
According to Financial Mirror calculations, if the economy grows during 2006 only at the same pace as it did in the first quarter, growth will not even hit 3% this year.
However, given that there is some seasonal effect from Easter, we have assumed in our latest forecast that there will be a small rebound in the second quarter, to 1%.
If the economy then grows by 0.7% in the second half of 2006 (the growth rate in Q4 2005), then growth will hit 3.0% for the whole of 2006–but only just. A margin of error in our model means that we could get lucky and hit 3.5%. But the government’s 4.0% seems way out of reach unless we have a bumper summer.
Fiona Mullen
