UNic sees Cyprus GDP up 2.4% in 3Q/4Q 2007

According to the statistical model developed by the School of Business of the University of Nicosia (formerly Intercollege) Macroeconomic Forecasting Group, Cyprus gross domestic product (GDP) in the third and fourth quarters of 2007 will reach CYP 2.21 bln (€3.78 bln) and CYP 2.20 bln (€3.76 bln), respectively.

GDP is expected to reach CYP 8.56 bln (€14.63 bln), an increase of 2.4% at current prices when taking into account that Cyprus GDP reached CYP 8.36 bln (€14.28 bln) in 2006 as published by the Statistical Service, Cystat.

The model’s forecasts for the first two quarters of 2006 were CYP 1.88 bln (€3.21 bln) and CYP2.27 bln (€3.88 bln), respectively, while the actual figures of the Statistical Service for the respective quarters were CYP 2.05 bln (€3.5 bln) and CYP 2.3 bln (€3.93 bln).

These observed deviations can be explained by the parameters of the model and the historical data used, the University of Nicosia announcement said.

The final outcome is largely influenced by the inclusion of the number of tourist arrivals, which shows a downward trend while tourist expenditure, another significant parameter, has increased considerably. The latter is expected to have a larger influence on GDP than the former.

Unfortunately, the university research said, the existing historical data do not allow the modification of the model during the current period but it will be possible to incorporate the new data (i.e., tourist expenditure instead of number of tourist arrival) during the next forecasting period (March 2008) in order to enhance the forecasting accuracy of the model.

Based on the above information, the rate of growth for the 2006–07 period, at current prices, is expected to slow down to 2.4%, compared to 8% for the corresponding period in 2005–06. However, because of the deviations between actual and forecasted values mentioned above, it is quite possible that GDP will show higher values of real growth. Therefore, the above forecasts can be considered rather conservative but, nevertheless, they are still above the European Union and Eurozone average, the university report added.

In general, the Cyprus economy is at a satisfactory state especially amidst a climate of uncertainty in the world economy. The transition to the euro is not expected to create any serious problems to the economy. The price increases in certain goods and services is not considered an on-going phenomenon and, as a result, price stability is expected to prevail.

Increased oil prices are not expected to have a significantly negative impact on the Cyprus economy. The simultaneous increase in oil prices and depreciation of the American dollar, in conjunction with the pegging of the CYP to the euro and the imminent transition to the euro, will have a neutralizing effect, since oil is priced in dollars, and will not exert any inflationary pressures.

The Macroeconomic Forecasting Group comprises Dr Spyros Hadjidakis, Dr Haritini Tsangari and Marios Christou of the Department of Economics and Finance of the School of Business. This Macroeconomic Forecasting Group was supported by the Advisory Council of the School of Business.