Cyprus growth at 0.7% in Q4, same as Q3

But 3.8% annual estimate confirmed

The Statistical Service has published real GDP growth figures for the fourth quarter of 2006. The figures confirm its estimate last November: of a real GDP growth rate of 3.8% for the whole of 2006, compared with 3.9% in 2005.

The quarterly growth rate in the fourth quarter was the same as in the third quarter, rising by 0.7% on a seasonally adjusted basis compared with the previous quarter.

Compared with the corresponding quarter of the previous year, growth slowed very slightly, from 3.6% in the third quarter to 3.5% in the fourth (or from 3.8% to 3.6% on a seasonally adjusted basis).

Acceleration needed

According to our calculations, if the quarterly growth rate stays at only 0.7% for the whole of 2007, then the growth rate will drop to 3%. Quarterly growth needs to be at around 1% in order to reach the same growth rate as in 2006.

However, as in all developed economies, historical figures are revised regularly, so these predictions are vulnerable.

According to the seasonally adjusted figures, the fastest pace of growth in 2006 came from â€œfinancial intermediation, real estate, renting and business activitiesâ€, which rose by 5.3% over 2005, followed by construction, which rose by 5.0%.

Given the strong growth in credit in 2006, this could be interpreted as banks (financial intermediation), lending a lot to developers (real estate), who used it for construction.

On the expenditure side, household consumption rose by a fairly strong 4.1%, so to finish off the interpretation, consumers buying all that new construction spent a lot on items such as furniture.

Non-construction investment was also quite strong in 2006, thanks not least to a 12.6% rise in investment in machinery and metal equipment. If such investment translates into higher productivity in the economy, then it is a good thing.

Big revisions to exports and imports

In a big change to the November estimates, exports and imports were revised down sharply: exports of goods and services are reported as rising by only 2.1% in real terms, while imports of goods and services rose byÂ 2.2%.

The Statistical Service noted that in the present release, certain methodological changes (FISIM allocation, chain linking method, change of the base year) were introduced, resulting in revisions to the past data series.

Fiona Mullen