Cyprus saw broad economic slowdown in 2008

Preliminary estimates for national accounts in 2008 show that there was a slowdown across almost all private sectors in 2008 but that the government helped to prop up growth by accelerating spending. Real GDP growth is estimated at 3.7% in 2008, down from 4.4% in 2007.
The biggest deterioration in fortunes the tourism-heavy hotels and restaurants sector, which saw growth of only 1.9% in 2007 turn into a contraction of 3.4% in 2008.
The next biggest deterioration, with a fall of 2.9 percentage points, was financial intermediation (banking). Despite growth in loans for housing remaining strong until late last year, the slowdown in non-house lending, as well as perhaps the impact of falling share prices, saw growth in financial intermediation drop from 9.0% in 2007 to 6.1% in 2008.
Similarly, growth in the broad sector of real estate, rental and business activities dropped by 2.6 percentage points from 6.8% to 4.2%.
The fastest growth by sector (apart from fishing, which is too small in value to make a difference) was in public services, which rose by 3.7% in 2008 compared with only 1% in 2007.
This probably reflects two things: the advent of a left-leaning government in early 2008, which emphaises social spending, but also a pro-cyclical fiscal policy which is being pursued all over the developed world, namely spending money when the private-sector economy is weakening.
This can all be seen in the figures on GDP by expenditure. While private consumption (the biggest item) saw growth slip from 8.2% to a (still high) 7.0%, government consumption ramped up from 0.1% to 8.7%.
The total value of GDP in 2008 is provisionally estimated at EUR 16,948.5 mln at current prices compared to EUR 15,596.3 mln in 2007.

Fiona Mullen
www.sapientaeconomics.com