* Consumer confidence worse, household spending expected to drop *
The business climate improved in December with the Economic Sentiment Indicator (ESI) generated by the Economics Research Centre of the University of Cyprus rising by 1.3 points from the previous month to 107.6, equal to the number recorded in October and marginally shy of the year high of 107.7 recorded in April.
Year-on-year, the ESI rose by 2.1 points from 105.5 in December 2014.
The ERC said in its monthly report that in 2014 the ESI had been on a recovery course, while in 2015 the Indicator showed a strengthening of economic confidence, recording prices above the long term average throughout the year.
In December, businesses expected demand and employment over the next three months to remain at the marginally positive levels of November. The trend for prices to drop in the next three months appears to be strengthened, compared to November.
The improvement of the ESI is due to the improvement of the business climate in services and, to a smaller extent, to retail trade, the ERC said.
In the services sector, the business climate was better due to an improvement in the current situation and expectations. Compared to November, the responses of the businesses regarding their economic situation and the number of employees during the last quarter were more positive. Furthermore, in December a significant improvement was recorded in the expectations of businesses regarding their turnover for the next few months.
In retail trade, the business situation improved marginally due to better expectations. Compared to November, some businesses noticed a drop in sales from the last quarter, while their responses on current stocks remained unchanged at the same levels for the season. In December, expected business activity and orders placed with suppliers for the next three months were more favourable compared to November. The expected employment for the next three months remained at the marginally negative levels of November, while the businesses’ expected selling prices for the next three months recorded a drop.
In construction, the business climate worsened marginally due to the deterioration of the current situation and, to a lesser extent, expectations.
In December, the assessment of businesses regarding their construction activity improved, while their responses regarding current overall order books and their expectations regarding employment over the next three months were more pessimistic than November. Furthermore, in December fewer businesses said they were planning to reduce selling prices over the next three months.
In manufacturing, the climate remained unchanged. December assessments regarding production over the past three months and current export order books were more negative than November. On the other hand, the responses for current overall order books and expectations regarding employment for the next three months improved.
The Consumer Confidence Indicator worsened in December, compared to November. The assessments of the consumers regarding the economic situation of Cyprus and households in the past 12 months were worse than November. Furthermore, their responses regarding the expected financial situation of households in the next 12 months were more pessimistic, while their estimations regarding the economic situation of Cyprus remained at the same levels as November.
The ERC said that in December a larger percentage of persons asked expected an increase in unemployment over the next 12 months.
Compared to November, fewer consumers noticed stable or lower prices over the past 12 months, while, as in November, the majority expected prices to remain stable or drop over the next few months.
In December, more consumers considered the current period unsuitable for major purchases and fewer said they would make any such purchase over the next 12 months.
Even though consumer opinion regarding the suitability of the present for savings remained the same, in December it was less negative regarding savings over the next 12 months.
