PwC sees slower growth for Cyprus, above Euroland average

Cyprus is likely to experience a significant deterioration in its short term economic outlook and the economy is forecast to expand at a slower pace in 2009 compared to recent years, although growth will continue to remain above the Euroland average, according to PricewaterhouseCoopers’ latest report on European economies.
The PwC analysis shows that the Cypriot economy grew by 0.6% in the third quarter of 2008 largely due to a surge in government spending. However, export growth slowed and consumer spending stagnated. Cypriot economic activity is expected decelerate in 2009 with GDP expected to expand by 1.8%, following an estimated 3.3% growth in 2008. This is still above the forecast Euroland contraction of 0.9% in 2009.
Cypriot inflation continued to fall, reaching 3.1% in November, although it remains above the Euroland average, the PwC survey showed. Inflation fell in the period largely due to significant price reductions in key commodities including energy and food.
Economic activity decelerated in key sectors of the economy including the largest sector which consists of retail, tourism and transport. Tourism is expected to face difficult times ahead especially as the UK, Cyprus’s biggest source of visitors, is entering into a relatively deep recession.
Consumer confidence dropped considerably in December, reaching its lowest level since August 2005. Overall economic sentiment, which includes both consumer and business confidence, carried on its recent downward trajectory. The impact of the global slowdown and weaker consumer spending has made businesses more pessimistic regarding the current economic environment.
“We are likely to see a significant deterioration in the economic outlook for Cyprus as the global slowdown and low levels of Cypriot consumer confidence take their toll,” said Yael Selfin, Head of Macro Consulting at PricewaterhouseCoopers.
“Government spending is likely to be one of the main drivers of economic expansion in 2009 with a weaker performance in exports being expected. Despite the continued fall in inflation, consumer spending is also expected to weaken in the coming months.”